Beware: “All-You-Can-Eat” Software Licensing Can Give You Indigestion!

Whether you call them “enterprise-wide”, “site license”, “all-you-can-eat”, or “strategic”, all involve unlimited software license use in one way or another. If you are involved in these unlimited software license deals, no matter what they are called, you may be leaving a lot of money on the table unnecessarily and as a result, suffer from chronic indigestion.

Of course, it is always better to do the deal, and get the cash, than to leave money on the table. But if you are going to do the deal, either get paid the amount YOU think is fair or make sure you get something in return. An unlimited software license doesn’t have to mean an unlimited everything-else deal.

When a prospect asks for an unlimited software license deal, price isn’t the only response. Recognize there are many dimensions to a deal so look for ways to pull out value and costs to make sure the money you receive is in line with the value your software delivers.

Prospects wanting unlimited software license use shouldn’t be given a perpetual license. Unlimited perpetual license deals limit a vendor’s upside to add-ons. Instead of a perpetual license, consider using a limited-term license, a.k.a. subscription license. If you are going to get “hosed” make sure you know how long that situation will continue. Even all-you-can-eat buffet restaurants aren’t open 7/24, 365 days a year.

Don’t rely on maintenance and support fees (M&S) associated with the unlimited perpetual license either. Make sure M&S is priced correctly based on the level of support and the maintenance hassles you might encounter. The typical “X-percent-of-license-fee” may not even cover your costs.

If you get squeezed in M&S, consider reconfiguring your traditional maintenance and support offering. Can you offer second level support? What about per-incident pricing with a guaranteed minimum? As for upgrades and product updates, forget about them – updates maybe – but upgrades are out.

Another way to deal with all-you-can-eat unlimited software licenses is to extend the range of volume discounts.

Suppose a multinational company wants to use your products in multiple subsidiaries and multiple locations within each subsidiary. To make sure you are being paid fairly, develop a discount structure that will encourage customers to pay fairly.

Start with a volume discount schedule that maxes out at a reasonable (large) number of users. Offer a site license price that is beyond the maximum number of users. In addition to the site license price, offer multiple-site license prices that are also suitably discounted. Then provide an enterprise-wide license price that is beyond the multiple-site license discount schedule and is an amount you would accept.

Even if the customer is unwilling to pay what you ask, you have provided a framework for establishing a price you think is fair while offering the customer less costly options.

But frankly, we’ve found no one is really empowered to do an enterprise-wide deal especially in a huge multinational company. Sometimes the enterprise-wide deal is a way to avoid license administration. If that is the case, either make the administrative tasks easy or do the work for the customer if you can. In general, though, a request for an unlimited deal is really just part of the negotiating dance and the more you have heard the music the better you can dance.

Regardless of how you configure the unlimited deal, make sure you are gathering information about software license usage even if the customer is paying a flat fee. It is essential to gather usage data so you know what an unlimited deal really means and what it is costing you so you use this experience to price other deals appropriately and, possibly, avoid unlimited deals altogether.

We’ve described a few ways to deal with “all-you-can-eat” software licensing deals. How do you respond to your customers or prospects who want them?

Jim Geisman is a guest blogger on Flexera’s Entitlement and Compliance Management blog. Jim is the founder and principal of Software Pricing Partners, Inc. He provides senior management counsel, marketing and sales consulting services and workshops. Learn more about upcoming workshops (including the one after SoftSummit 2010).

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