Licensing and Subscription Management to Grow Revenues in the Cloud

June 2011

Dr. Richard NorthingVP of Global Services

2 © 2011 Flexera Software, Inc. | Company Confidential

Agenda

• Cloud Computing Market Segments

• Cloud Revenue Growth Strategies

– Pure-Play SaaS

– Packaged Software

– Device Manufacturers

• Flexera Software

Servers, Networking, Storage

Cloud Computing Market Segments

Cloud ApplicationsSoftware as a Service(SaaS)

Cloud PlatformPlatform as a Service (PaaS)

Cloud InfrastructureInfrastructure as a Service (IaaS)

Packaged Software

App Development

App Development, Web Infrastructure, Data Warehousing

Virtual Appliances for Packaged SW

Intelligent Device ManufacturersVirtual Appliances

S+S: Software + Services

APIs

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Pure-play SaaS

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Pure-Play SaaSRevenue Growth Strategies

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“Pure-Play” SaaS Providers

Business Challenges

1. Leaving money on the table because of a “one size fits all” approach to offerings

2. Credential sharing abuse – user-based license model vulnerability

Challenges with Building Your Own or Using a CRM System for Entitlement Management System

3. Transitioning to tiered offerings requires tracking and enforcing customer entitlements

4. Homegrown entitlement management systems and spreadsheets fail to deliver revenue opportunity from tiered offerings

5. Tiered offerings require on-going tweaks. Homegrown backoffices cannot keep up and get in the way of revenues.

5

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0 1%-19% 20%-40% >40% Other

31%

38%

13%

6%

13%

Estimated Revenue Missed Due to “One Size Fits All” Pricing/Packaging

1 – 56% of SaaS ISVs Miss Revenues Due to “One Size Fits All” Packaging and Pricing

What is your estimate of revenues you are leaving on the table because of “one size fits all” pricing/packaging?

Source: Flexera Software online poll of SaaS ISVs, April 2011

56%

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STRATEGY 1: Package and Price Offerings to Match What Customers Want to Buy

Tiered packaging approach also

helps to fund R&D by having

customers that value premium

features pay extra for them

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2 – User-Based License Models are Vulnerable to Credential Sharing Abuse

Machine ID: C

Machine ID: A

SaaS Services

Machine ID: B

Some providers are losing 40-60% of potential users to credential sharing

• In this example, the SaaS offering is priced based on named user

• Customer purchases 1 credential but 3 users share it

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Machine ID: C

Machine ID: A

SaaS Services

STRATEGY 2: Prevent Revenue Leakage Due to Credential Sharing Abuse

Machine ID: B

Machine Identity + Credentials

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3 – Transitioning to Tiered Packages Requires Tracking and Enforcing Customer Entitlements

Features (5 tiers)Leads

Marketing content

Opportunities

Support Incidents

Reports

Metrics (2)License Model (3)

Annual Subscription

Day Pass

Trial# Users

# GB Documents Stored

A SaaS CRM ApplicationIn this example, a tiered packaging approach will require the SaaS ISV to track and enforce 30 possible offerings based on entitlements

• 5 features • X 3 License Models• X 2 Metrics

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CR

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46%

23%15%

8%0% 0%

8%

Source: Flexera Software online poll of SaaS ISVs, April 2011

38%

4 – 38% of SaaS ISVs Use Spreadsheets or Homegrown Tools to Track Entitlements

Which approach best describes how you keep track of customer entitlements? 38% of ISVs use

spreadsheets and homegrown tools to track entitlements

CRM systems cannot cope with complex entitlements though they are used by 46% of respondents

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4 – Homegrown Backoffices and Spreadsheets Fail to Deliver Revenue Opportunity from Tiered Offerings

Source: Analysis of Flexera Software SaaS product line

For one SaaS product line, 12% of customers were using more than what they had purchased ~$1.7M per year in missed revenues • Leaving entitlements in

spreadsheets and homegrown systems makes it difficult to offer tiered upgrades and take advantage of up-sell opportunities

• “True-up” conversations are almost always painful and rarely recover the full revenue potential

88%

12%

Compliant Customers

Non-Compliant Customers

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Bandwidth Used

Storage Used

Project(s)

Feature or Modules Used

Other

Enterprise or Site Subscription

Freemium (free basic/paid upgrade)

Per Business Location

Concurrent Seats

Per Transaction/Usage

Named Users

0% 10% 20% 30% 40%

5 – Tiered Offerings Require On-Going Tweaks

Source: Softletter SaaS Report 2010, http://www.softletter.com/Research/SoftletterSaaSReport.aspx

• No silver bullet with respect to pricing model

• SaaS providers will need to evolve pricing / packaging approaches

How do you price your SaaS offering?

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STRATEGY 3: Dedicated Entitlement Management System to Drive Revenue and Manage Complex Entitlements

15

Subscription and Entitlement Management

Verify Entitlement

De-provision Users

Up-sell Users

Set up Service Bundles

Provision Users

Gather Usage

Renew Customers

Bill Customer

Entitle Customers

Business Challenges and Strategies

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Package and price offerings to match what customers want to buy WITHOUT involving engineering

SaaS providers are leaving money on the table because of a “one sizes fit all” approach to packaging offerings

BUSINESS CHALLENGES STRATEGIES

Reducing number of hardware variations (SKUs) to meet diverse needs

Transitioning to tiered packages requires tracking and enforcing customer entitlements.

Homegrown backoffice systems and spreadsheets fail to deliver revenue opportunity from tiered offerings

Tiered offerings require on-going tweaks. Homegrown backoffices cannot keep up and get in the way of revenues.

Invest in a best of breed entitlement management system

Prevent credential sharing abuseSaaS providers are losing 40-60% of potential users to credential sharing

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Packaged Software IncumbentsCloud Business Models and Growth Strategies

18

Other

Grow revenues by leveraging cloud service providers like Amazon as a channel for your products. Note: Virtualiza-

tion enables cloud provides to flexibly provision your software based on demand

Grow revenues by allowing NEW/EXISTING users to complete compute-intensive tasks faster in the cloud

Grow revenues from UNADDRESSED customers that cannot afford your products because of current pricing

models (e.g. customers looking to use products occasion-ally, which you may not support today)

Grow revenues from EXISTING customers by providing them flexibility to expand/contract usage of products based

on need (e.g. customers that want to expand usage of your products for the duration of a project)

Reduce software delivery, installation and configuration costs for customers

16%

27%

40%

42%

47%

48%

Cloud Computing Will Allow Packaged Software Producers To Grow Revenues And Lower Costs

Source: Flexera Software Virtualization and Cloud Computing Business Model Trends Survey, June 2010

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How would you describe your business goals with respect to Cloud Computing? (Check all that apply)

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Three Cloud Product Strategies for Incumbents

Product Strategies• Software + Services: Augmenting on-

premises software with a cloud based component, which may be monetized separately.

– Examples: Mathworks, Autodesk

• Packaged Software: Allowing packaged software to be deployed in the cloud with either existing or new monetization approaches• Examples: IBM Jazz

• Virtual Appliances: Packaging software as virtual appliances, and monetized with either existing or new pricing models

– Examples: Oracle

Use Case Variations

• Standalone software vs. volume purchase

• Pre-paid vs post-paid

• Public vs Private Cloud

• Virtual appliance vs incumbent packaging

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Software + Services: Example 1

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• Design on the desktop

• Search for parts online (stored in Amazon S3)

Source: Company website

CAD Software: Desktop + Cloud to add more value

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Software + Services: Example 2

22

Scientific Computing Software: Desktop + Cloud to Accelerate

Source: Company website

• Program on the desktop

• Compute in the cloud (Amazon EC2)

• Accelerate results

Cloud ClusterDesktop System

Local Servers Performing

Computation

Cloud Servers Performing

Computation

Scheduler

Packaged Software in Cloud: Charging by the hour for EDA software

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Monetizing Virtual Appliances(for Device Manufacturers)

Virtual Appliances

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• Oracle customers can now license Oracle Database 11g, Oracle Fusion Middleware, and Oracle Enterprise Manager to run in the AWS cloud computing environment.

• Oracle has delivered a set of Amazon Machine Images (AMIs), that can be downloaded from the Oracle site

• Developers can take advantage of the provisioning and automated software deployment in these AMIs to rapidly build applications using development tools such as Oracle Application Express, Oracle JDeveloper, Oracle Enterprise Pack for Eclipse and Oracle Workshop for WebLogic.

Sources: Oracle/Amazon web sites

9000 virtual appliances on the Amazon Web

Services (AWS) marketplace

1400 virtual appliances on the VMware

marketplace

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How We View Virtual Appliances

26

A virtual appliance is a software stack packaged as a virtual machine image.

The software stack replaces a physical device.

As a result, it can be:

• Deployed on off-the-shelf hardware

• Upgraded for capability or capacity changes

• Consolidated using virtualization technologies

Virtual Appliances

Citrix NetScaler Virtual Appliances offer same functionality as NetScaler physical devices

Example

Virtual Appliances Physical Appliances

VPX 1000 (1 Gbps)

VPX 200 (200 Mbps)

VPX 10 (10 Mbps) MPX 7500 (1 Gbps)

MPX 9500 (3 Gbps)

MPX 15500 (15 Gbps)

MPX 12500 (8 Gbps)

MPX 10500 (5 Gbps)

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Business Challenges and Strategies- Virtual Appliances for Intelligent Device Manufacturers

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Service providers provision capacity to meet peak demand which leads to unused capacity during off-peak periods

Grow upsell/cross-sell revenues by delivering capabilities as software add-ons or on a trial basis

Device manufacturers face eroding margins on hardware products

Transfer hardware costs to end customers by making device capabilities available as pure software

Challenges Strategies

Service providers want to reduce power consumption, space and administrative costs

Consolidate many capabilities into one device

Allow service providers to dial up/dial down capacity on-demand without deploying hardware, eliminating unused hardware

Virtual Appliances enable manufacturers to protect margins, enable cross-sells/upsells and flexible capacity models

Summary

• Cloud computing will transform business models for software producers and device manufacturers

• Business model transformation has many of the needs of on-premises software:

– Monetization of products– Capacity counting/ tracking– Authentication & authorization of use– Usage tracking– Binding to help with compliance

• Best of breed subscription and entitlement management solutions will power the transformation

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30 © 2011 Flexera Software, Inc. | Company Confidential

• Top 200 Software Company

• Solidly profitable

• 425 Employees

• 80,000 Customers

• 20,000 FlexEnabled Applications

• 200,000,000 PC’s Receiving Software Downloads and Updates

Flexera Software

Statistics Highlights Customer Base

• Market Leader

- Entitlement andCompliance Management (FlexNet Producer Suites)

- Enterprise LicenseOptimization (FlexNet Manager Suite)

- Installation and Packaging (InstallShield, AdminStudio)

SoftSummit offers a comprehensive look at the entire software and device product lifecycle—providing you

with strategies and the know-how to adapt your business to thrive in today’s fast-changing market. 

Marriott San Jose ● October 24-26, 2011