Software Monetization: Microsoft’s New License Metric

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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 a fundamental to software that 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.

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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