L I C E N S I N G
New Business Models for Software, Machines, and Materials
In the past, the software industry relied on the simple one-off sale of software. This had specific drawbacks for both the software developer and the user buying it. The seller had no dependable income beyond the incidental sales, and the user had to fund a major upfront investment. Software developers could create more reliable revenue streams with maintenance and support agreements, but would then have to offer substantial discounts to counter the impact of high original purchase prices – and discounts are not the most popular approach for the people forced to offer them.
Pay-Per-Use for Machines This business model is very similar for machine makers. Again, the upfront costs are usually very high. Maintenance agreements or service fees are an appealing after-sales revenue stream that helps pay for new product developments. On top of software, the sale of spare parts and consumables is another source of income, be it the cutting of the basic material used for dental implants, for example, or more straightforward printer ink, toner, or 3D-printing granulate. Frequently, the makers of the machines also sell these consumables, which creates interesting avenues for other business models – for instance, giving the users a pay-per-use option that lets them pay only for what they are actually using. In the short term, this means lower investments and lower risks from purchasing the machines. In the long run, the machine maker has a reliable income stream, at least if the user remains a satisfied client.
Pay-Per-Use for Software Only One might think that pay-per-use is only an option for machines or consumables. This could not be further from the truth, as the concept also works for software-only solutions. Imagine software that calibrates pumps. Your business model might then be based on having the user pay for each calibration. In practice, this would mean creating software licenses, like CodeMeter does. You charge a fee per license, which CodeMeter has been doing reliably for almost 15 years. And this is only one of many already successful pay-peruse models.
You could also bill your users for the time they spend using your software. The approach chosen for several years by CivilServe GmbH, Germany, when addressing international markets is very interesting in this respect: Their users can buy contingents of 10 hours of use time for their entire construction software portfolio. This is a very enticing option for clients that need different components of the software, but only for a temporary period on one project. For the developer, it is also a promising choice, as it creates a relationship with clients who might eventually buy the full package.
Maintenance Agreements and Subscriptions
Classic choices for software include support or maintenance agreements and subscription models. They are technically closely related to the pay-per-use models. The end of the update period or usage period is set in the software license, and a process would be started automatically to renew the license. The difference when compared with pay-per-use licenses is that this renewal is a cyclical event and does not consider the actual use of the software or machine. Models and procedures of this type have been described in more detail in other issues of our KEYnote.
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