Role of License and Entitlement Management in Monetization

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We’ve been long-time advocates for monitoring or controlling access and use of software because, to paraphrase Intel’s Andy Grove, “You can’t monetize what you can’t monitor.”

Access Management

Managing and controlling access to software is done with license or entitlement management systems available from companies such as Flexera Software, SafeNet (acquired by Gemalto), and others. The systems have two major functions in common: license management and entitlement management.

  • License management ensures the quantity and types of licensed software deliverables are what the customer ordered for which the ISV was paid.
  • Entitlement management ensures that software is configured and delivered in accordance with key provisions in the software license.
License and entitlement management systems do monetize what an ISV is paid for, they do not affect the Monetization Model.
In effect, license management keeps track of access quantity while entitlement management controls what is available for access.

Even now, a lot of enterprise software is licensed on a “trust me” basis. Neither ISV nor customer track how much of what type of software is in use resulting in ISVs often being underpaid. (SaaS products don’t need to use trust-me licenses.)

When license and entitlement management replaces trust-me licensing, there is less revenue leakage, and therefore more revenue. While license and entitlement management systems monetize what an ISV is paid for, they do not affect the basic Monetization Model. A Monetization Model increases revenues not by stopping revenue leakage, but by increasing the amount realized on every single unit sold.

Better Aligned Value

In contrast, a Monetization Model is a framework that can help ISVs package and deliver software whose prices are better aligned with value delivered. A Monetization Model consists of three components:

  • License Model that includes a value-aligned metric that is an indicator of quantity as well as terms that cover the software license and other commercial items like payment
  • Offering Model that includes different combinations of features and services that deliver appropriate value to specific groups of customers
  • Pricing Model that includes the price levels that apply to specific types and quantity of software, including standard discounts or incentives

How are License and Entitlement Management related to the Monetization Model? The license management function monitors the metric in the License Model and often the features that are defined by the Offering Model. The entitlement management function ensures elements from the Offering Model are applied correctly.

In addition, log files from both functions can inform decisions relating to the Offering Model–especially when software usage is monitored at the application or feature level.

In summary, license and entitlement management can increase revenues, but ISVs that also develop a robust Monetization Model are more likely to realize their full revenue potential.

About the Author

Jim Geisman

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Jim is cofounder of Software Pricing Partners. An original member of the IMP team (ARPAnet project), Jim has helped emerging, growth and enterprise software companies solve some of their toughest pricing problems.

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