How To Change Software License Correctly

Software Monetization: Microsoft’s New License Metric

Published: November 14, 2014 | Updated: September 28, 2021

For years, Microsoft has done enterprise licensing for some of their products on a per-device basis (versus per-user for desktop products). Microsoft recognized it is time to change because many people access products from multiple devices — including non-Windows ones.

This shift provides lessons about doing effective monetization, the first of which is always start with the customer.

3 Things to Think About

  • Choosing a license metric. If the value Microsoft delivers is access to their products , then either a per user or per device metric would be equally acceptable. However, given that one person can access Microsoft products and can only do so using one device, it would seem that per user was the correct metric to begin with because it is well aligned with value delivered.
  • Simplify ordering with fewer metrics. Companies that offer multiple products are well advised to strive for as few metrics as possible. When a customer orders products that are licensed with different metrics, they are forced to go through some sort of estimation process multiple times to figure out what quantity of product they need. More metrics means more inconvenience for the customer and probably slower sales.
  • Transitioning the installed base. Changing a software metric will also change the unit and discounted prices. Dealing with an installed base can be disastrous without careful planning (which I’m sure Microsoft has done). New orders from new customers are not a problem. New orders from existing customers can be problematic when some customers want to order more products using the old licensing scheme. (Of course, the customer transition to the new licensing scheme has an impact on revenues that needs to be well understood as well, but that’s a separate topic.

The license metric is fundamental to software and it needs to be carefully considered. Unfortunately, many software companies just default to a per-user license metric when another metric may be better aligned with the value delivered.

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About The Author

Chris Mele

Chris Mele

Chris is Managing Partner for Software Pricing Partners, where he and his team have launched some of the software industry’s most transformative monetization strategies. As a former software company founder and leader, Chris focuses on the impact effective licensing, packaging and pricing strategies can make on the most essential software company metrics: revenue, profit and valuation. Under his leadership, Software Pricing Partners has become an influential voice for growth-oriented software companies both large and small.

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