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Software licensing in 2021 – why and how businesses need to jump on board

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(Image credit: Image source: Shutterstock/niroworld)

The outbreak of the Covid-19 pandemic last year – and the remote working environment it rapidly created – are continuing to drive strong demand for software to be more accessible for both consumers and businesses. From the way we use technology to how we carry out our work, the limits on travel and social distancing guidelines have led to a constantly changing landscape with a need to consume services in a different way. Amid this business uncertainty, there has been a significant shift among organizations to invest in operations and switch to sell their solutions online.

While many firms are familiar with the transition to subscription licensing and are looking to boost revenue from new delivery models and packaging of functionality, for others this will be a dramatic shift from how they have operated in the past. This is why 2021 is set to be a significant year for software licensing and an area that businesses need to understand in order to defend and grow their revenue.

Evaluating and optimising their software licensing approach can allow businesses to create new and innovative revenue streams, increase operational efficiency and generate customer insights – which in turn will help organizations to understand the demands of their consumers and develop products with their customers in mind. In addition, amid the current climate and financial turbulence, this can help provide reliable and predictable revenue streams. 

So, what trends can we expect to see in 2021, and what should be the key focus for companies looking to enhance their software licensing?

Battling customer churn  

With subscription licensing, continual customer engagement becomes key. The goal is no longer about just winning the customer, it’s now about an ongoing relationship with that customer to provide value to keep them engaged. Businesses must continue to deliver benefits for their consumers, or they risk losing them to a competitor – and producing a successful subscription licensing program starts with a vendor’s company structure and culture.

Pre-pandemic, we saw more hyper focused businesses with a traditional organizational structure – where customer support, supply chain and IT were all very singular functions. In 2021, we will begin to see more organizations align with how customers use their products. Through data analytics, this shift in direction, from product-focused to customer-centric, will enable businesses to understand where to invest in the future, focusing on areas customers are actually getting value from. It also means businesses can go back and continually delight the customer with new products and services, keeping that regular interaction alive and providing an opportunity to upsell that is harder to achieve from one-time transactions.

Shifts in flexible business models

This chance to upsell leads into the next change we’ll see for businesses in 2021. Traditionally, organizations with a broad product portfolio would bundle their goods together in an ‘all you can eat’ buffet style licensing agreement. Now vendors can offer their customers bundles of product features underpinned with the license model that create value to match market sector and geography needs.

In 2021, more business will look to adopt subscription models to match the end customer demands for greater choice and flexibility. Customer demands and expectations are changing, and many want to avoid upfront investment and be able to easily scale up or down. As such, this shift means that software businesses will have to change too.  

One of the other big trends in buying models – especially when trying to acquire new customers – will be the emergence of subscriptions offered in tiers of capabilities. From trial to premium models, this has the potential to lower the cost barrier, allowing more customers to enter at lower cost, experience the benefits, and then, once they derive value out of it, upgrade to a higher offer with more features. This will also enable companies to upsell these new features and grow their revenue base. 

Even for customers who aren’t able to upgrade, or for those who chose not to, lower cost barriers mean that those who were previously priced out of the market are able to buy into entry-level offerings. This platform ensures that vendors can capture more of the market. 

Not only do flexible business models allow vendors to tailor their products more closely to individual customer needs, but they also provide opportunities to regularly communicate with consumers. For those with a smaller investment, it is possible to maintain their engagement and growth with incremental changes, each time a licensing agreement is up for renewal.

M&As leading the pack 

Finally, as businesses continue to face tough decisions in order to survive in a post-Covid-19 landscape, merger and acquisitions (M&A) will spike in 2021 as some sectors struggle to keep afloat and larger ones look to solidify their position by acquiring others. However, the post-M&A integration of organizations can be complex – especially during the pandemic when businesses need to move quickly. 

In order to come out of this emerging trend on top, businesses must ensure there is a central approach towards policies and procedures around software licensing. This includes a consistent approach to software delivery, entitlement and licensing that results in fast on-boarding of products from acquired businesses to the main organization. In doing so, all components will come together, boosting business efficiency and scalability capabilities.

So, as we move through 2021, and businesses accelerate their digital transformation to compete in this increasingly connected world, just adopting software is no longer enough. Successful software organizations will be those that recognize the emerging trends and the increasing importance of software licensing subscription services as an integral part in growing businesses’ revenue. Those that act now to improve customer engagement and ensure that their business models offer greater flexibility, will be the ones that succeed.

Adrian Pearce, EMEA Principal Business Value Consultant for Licensing Solutions, Thales