TrendView Report Understanding Today's IPM Software Licensing Models Synopsis Purchasing software involves a number of important, interrelated considerations: license type, usage scope, maintenance and support, installation location, and license fee calculation, are all critical dimensions of the software purchase. We find a range of practices amongst vendors in the IPM software market. While no model is inherently advantaged or disadvantaged, licensee-purchasers are well advised to understand their vendor's approach and how this might impact their business objectives. This TrendView Report outlines the common practices found in today's IPM software market, noting important license model considerations in choosing the right solution. Discussion While "feature and function" fit is always at the heart of every software selection process, early attention to your vendors' license approaches is critical. A given vendor's approach - and the flexibility or inflexibility therewith - could have a material impact on meeting the objectives of your project. In terms of the software license, there are generally five primary components to be considered:
1. License Type The License Type refers to the duration of the license granted. Most licensee-purchasers are familiar with "perpetual" licenses that grant use of the software for an unlimited time duration. You purchase the software and basically own the software forever. Increasingly we see vendors in the IPM software market offering their software as "subscription" licenses. This is more common for "software as a service" models, but subscription licensing is also used for in-house installed systems. An adjunct to the subscription license is called a term license in which the licensee-purchaser is considered to "own" the software for a limited duration; this approach is not common in the IPM software market. Under a subscription model, licensee-purchasers agree to use the software for a fixed term. These are often for multi-year subscription terms; for example, "an initial five (5) year subscription term", during which the licensee-purchaser has rights to use the software and is obligated to pay the subscription license fee. After the subscription term, the licensee-purchaser either renews the subscription, or stops using the software without further obligation (retaining their data and proprietary information.) There are many important consideration in comparing perpetual versus subscription, with implications across all the business terms of the purchase. Generally, a perpetual license is considered more expensive initially, requiring a larger budget outlay upfront; whereas a subscription is less expensive in the first year and spreads costs over the license term. The Total Cost of Ownership (TCO) --often computed over either a three year or five year period -- is an important measure of comparable costs between vendors. (See, also, other sections in this Discussion which contribute to the TCO comparison between vendors.) Another importantly factor is the different budget treatment for perpetual licenses versus subscription licenses. Perpetual licenses are usually depreciated as capitalize expenses for technology assets, whereas subscription licenses are considered leases and treated as annual operating expenses. This can also have implications for the budget treatment of implementation related services. Your procurement or purchasing department understands these issues very well - which can differ from company to company - and can advise on the implications.
In the IPM market, usage metrics include record counts (e.g., the number of inventions, patents, trademarks, etc.), and IP users. Usage metrics allow vendors to scale the license and corresponding license fee to fit the licensee-purchaser's organization. For example a small organization would pay a proportionately lower license fee, compared to an organization with more users and/or more records. Metrics are not necessarily a bad thing. Metrics are a form of value-based licensing that scales to the clients needs. The more the system is used, the greater the value derived, and the more cost-justified the license fee. The advantage is that the scope and cost of the license can be properly fit to the organization.
Usage metrics are not only used in subscription licenses; usage metrics are often also part of perpetual license models, allowing for vendors to charge for additional users and/or records.
3. Maintenance and Support Maintenance and Support (M&S) is generally considered, for practical purposes, part-and-parcel to the license. M&S provides software fixes, updates or enhancements to licensed modules, and technical and user support services. In the IPM market, these also include updates to country laws and rules, forms, fees and other oft-updated reference information. The scope of M&S services differ widely between vendors - particularly as relates to whether the vendor uses a perpetual or subscription license type. Some vendors will also offer M&S service level options with different fee levels. From a cost perspective, under the perpetual model, M&S is usually charged annually, and is calculated as a percentage of the base license fee - typically 20%-25%. In a subscription model, M&S is usually included in the subscription fee with no additional charge.
The scope of the "Maintenance" aspect of M&S is an important consideration, and again, generally differs between perpetual and subscription license models. In the perpetual license, M&S is usually limited to software fixes and minor updates. Major new releases require essentially a new purchase (although vendors will often offer upgrade discounts.) In addition to cost, there is also a negative impact on waiting for the latest tools and technology which are only released with new products (e.g., every 3-5 years.) The cost of purchasing the next new product - as well as the lost opportunity cost in new capabilities - should be factored in to the TCO and ROI calculation for long-term use of the system.
In contrast, subscription models generally include major new releases of the product with no additional charge. We find that subscription-based vendors tend to have a more frequent and steady stream of enhancements, particularly for software-as-a-service or hosted products (discussed below), where enhancements are easily deployed to customers. The "Support" aspect of M&S, is also an important consideration. We see a broad range of service levels and approaches to how Support is provided. Vendors may provide both technical and user support (e.g., training), while others only offer technical support for product defects. Understanding the definition of support issues, and corresponding responsibilities is important when structuring how the system will operate in your business and IT environments. Licensee-purchasers should be particularly focused on response time schedules, and live support desks meeting both time zone and language requirements. Also, as discussed below, the installation location can also have important M&S considerations. 4. Installation Location The Installation Location option of "in-house" or "hosted" is becoming an important consideration in the IPM software market. Qualities of each approach may have advantages or disadvantages depending on an organizations requirements. The in-house deployment approach is usually associated with the perpetual license model, although it is not uncommon for subscription based software to also be available for in-house installation. With in-house deployment, all infrastructure (hardware and software, such as operating system and database) are provided by the company, not the vendor. In addition, all infrastructure support, such as initial setup, maintenance and disaster recover, are the companies responsibility. These costs should also be considered as part of both the initial and ongoing long term cost.
The hosted deployment approach is usually associated with the subscription license model, with a sometimes confusing number of acronym-designated forms - with SaaS (software as a service) and ASP (application service provider) being the most prevalent. While there is technical debate over what constitutes the various forms of hosted solutions, there are a few particularly important considerations. First, licensee-purchasers should understand whether they are licensing their own copy of the software, or are accessing an essentially shared application (with proper security controls separating company specific configurations, data and other proprietary information.) While a company specific copy of the software may be more comfortable from a secure perspective, there may be maintenance and upgrade inefficiencies. On the other hand, a shared application approach may limit certain company-specific configurations, system interfaces or customizations. Licensee-purchasers should also understand whether the hosted infrastructure environment is dedicated or is shared by multiple licensees; this includes both at the application server level and the database level. Some vendors will provide the software application on shared servers (either a single copy or multiple copies through virtual servers), with the database housed on a dedicated server. Infrastructure cost is also an important factor in hosting. Whereas in house deployment requires the licensee-purchaser to provide all required infrastructure, the hosting approach spreads infrastructure costs over the license term, with most subscription based vendors including hosting costs within their subscription license fee. Vendors may provide upgraded infrastructure configuration options for additional fees. Finally, hosting also has budget implications in that infrastructure costs would be charged as a service, and therefore charged as expenses, rather then capital costs incurred for the in-house purchase of hardware and software infrastructure. 5. License Fee Calculation The License Fee Calculation - after functional fit - is often the most important consideration in vendor selection. As discussed above, perpetual license fees are paid in one-time upfront payments, whereas subscription based licenses are paid on an annual or monthly basis. In the IPM software market, the License Fee Calculation is often a combination of the following criteria:
The definition of these criteria are vendor specific, and can be confusing. Sometimes referred to as "usage metrics", these numbers are at the crux of most License Fee Calculations and can have a significant impact on system cost. The number of users refers to both "core" IP users, and business, inventors and other users who will access the system on an occasional basis. Licensee-purchasers should look for differing fee-levels associated with roles and access controls. Number of records includes inventions, patents, trademarks and other asset types which are managed in the system, as well as documents which may be housed in the IPM system. Vendors may distinguish between active and inactive records, and special consideration should be given to how case status impacts record counts. Finally, some vendors will take other metrics into account, such as monthly/annual invention disclosures, invoices, law firms and other aspects of the system which scale according to organization size and usage. In addition to the initial License Fee Calculation, provisions for license fee increases based on usage metric changes is important. Vendors often retain the right to audit system use levels (i.e., number of records and users), and can prorate additional license fees for any increases. Some vendors will charge either pre-negotiated percentage increases or allow for caps. Licensee-purchasers should clearly understand the vendor's approach to metrics and additional license fees. Additional Information Disclaimer - Terms of Use
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MarketView: Understanding IPM Software License Models |