Flexera Software/IDC Report Reveals Enterprises Fleeing the Perpetual Software Licence Model Due to Shrinking Budgets in Favour of Alternative Models

Ironically, ‘shelfware' is rampant with 96 percent of organisations wasting money on un-used software

Maidenhead, U.K. - September 30, 2014. Enterprise software spending is being squeezed, and as a result organisations are looking for better ways to align software costs to value.  This is the conclusion of a new Flexera Software 2013-14 Key Trends in Software Pricing & Licensing Report, prepared jointly with IDC, the ninth annual assessment of key issues and trends on the minds of software vendors, intelligent device manufacturers, and enterprise IT executives and managers.  The  report reveals that the traditional purchasing model for enterprise software - the perpetual software licence - has drastically decreased in popularity in favour of alternative licensing models such as subscription and usage-based.
Almost a quarter of those surveyed (24 percent) say the majority of their software estate today utilises subscription licenses.  In 12-24 months this percentage will rise to 26 percent.  For the 17 percent of respondents using usage-based licensing models, this percentage will rise to 18 percent in the next 12-24 months. Previously nearly ubiquitous, only 45 percent of organisations today say that the majority of their software estate is deployed using perpetual licenses.  In 12-24 months, this percentage will decline to 36 percent.
"It doesn't always make sense to pay up front for the full cost for software before the application has proven its value to the organisation," said Steve Schmidt, Vice President of Corporate Development at Flexera Software. "In their drive to increase efficiency and cost effectiveness, some organisations prefer to pay for software in ways that allow them to better align their costs to value.  That might mean paying over time via a subscription model, or by the features, functionality or capacity that they're actually using, via a usage-based model."
Application Producers See Opportunity in Offering Flexible Licensing Options
According to the revenue breakdowns revealed in today's report, application producers see the writing on the wall and are offering a greater variety of licensing models.  Only slightly more than a third of producers (35 percent) say that the majority of their annual software licence revenue now comes from perpetual licences.  Nearly a quarter - 22 percent - says a majority of that revenue comes from subscription/term licensing.  Nine percent say a majority comes from usage-based licensing.
"Having the ability to identify customer needs and licensing model trends, and then quickly respond with new licensing options can give producers a significant competitive advantage," said Schmidt.  "However, licensing standards are evolving and licence management systems are growing more complex, making them less cost effective to develop in house.  We see an increasing number of producers adding automation that will make it easy to offer a wide range of flexible licensing models for their applications, allowing them to cash in on the trend and gain market share."
Shelfware is Rampant within Organisations
Ironically, despite shrinking budgets and the pressure on enterprises to seek greater value from business software, the report reveals that almost all organisations are wasting money on software that isn't being used ("shelfware"). 96 percent say that at least some of the software they've purchased is shelfware.  A significant percentage - 39 percent - reports that 21 percent or more of their enterprise software spend is wasted on shelfware. At the same time so much waste is being reported, funds are growing scarcer.  Almost two-thirds of enterprises (63 percent) say their software budgets will either stay the same or shrink over the next two years.
"It's very easy for shelfware to accumulate when organisations don't proactively implement best practices and technology to track, manage and optimise their software estates," said Amy Konary, Research Vice President - Software Licensing and Provisioning at IDC.  "Enterprises must have the ability to continually identify where software licences are deployed, how those licences are being used, and reconcile that data with the complex set of rules contained in the licensing agreements.  By having this level of insight, CIO's can begin to identify shelfware, eliminate waste and reallocate their budgets more effectively."