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Analysis of the Global Software Monetization Market

  • March 2014
  • -
  • Frost & Sullivan
  • -
  • 95 pages

Summary

Table of Contents

ARM Is the New x86; Cloud Is the New Desktop; Usage Trumps User Count

Executive Summary

•This study covers market size, trends, competitive landscape, and growth strategies for the global software monetization market. This market is also referred to as SLM*, entitlement management, or software DRM*.
•SLM enables software publishers and intelligent device vendors to efficiently monetize their products, particularly for enterprise and networked deployments. The 3 key SLM functions are: defining software versions and licensing rules (development); automating license issuance and invoicing (deployment); and ensuring that software is used in accordance with the terms of a purchased license (enforcement).
•This study discusses (but does not analyze) markets such as license compliance management, software asset management, application hardening, and analytics.
•SLM systems were traditionally sold as anti-piracy solutions; Today they are positioned as monetization solutions with emphasis on business models and user experience.
•Client-side enforcement can be done using hardware keys or dongles, which account for the majority of revenues today. It can also be done from within the software or through the cloud; these are becoming more popular alternatives due to lower cost, flexibility, and ease of use.
•This market is highly saturated; the topxx vendors have nearly xx% of market share. Smaller competitors continue to challenge incumbents, and cloud service vendors will add a new dimension of competition, but the topxxvendors—SafeNet, Flexera Software, and Wibu Technologies—are in no danger of being unseated.
•Intelligent devices or embedded segments are increasingly incorporating software into their products and adopting SLM to manage product versions and stock keeping units (SKUs). As traditional software saturates and software as a service (SaaS) remains nascent, embedded applications offer the biggest growth opportunity source for SLM over the forecast period, but demand significant re-engineering of traditionally desktop-focused solutions.
•Usage-based licensing is a key trend in the software monetization market as customers gain increasing say in how they want to consume and pay for their software.
•North America and Latin America (NALA) will overtake Europe, the Middle East, and Africa (EMEA) as the strongest regional market by 2015, driven by organic growth of customer verticals and greater conversion of enterprises from using homegrown solutions to using commercial solutions. Asia-Pacific (APAC) is also growing, driven by growing publisher revenues, cloud-based deployments, and aggressive global expansion by publishers.
•The SLM market has xx key vendors, most privately held. Revenue in 2013 is expected to be slightly under $xx million, with linear growth expected in 2013–2018 for a CAGR of xx%.

CEO’s Perspective

SLM vendors must position themselves as long-term monetization partners, engaging with CMO* and CFO* teams.
Usage-based models are growing; SLM must enable these without losing sight of traditional use cases.
End-customer experience and operational efficiency are driving ISVs’* LM* strategy, adoption, and transitions.
Cloud represents opportunity, but also uncertainty, for vendors, publishers, and even end customers.
Regardless of positioning, anti-piracy and anti-hack strength remain at the core of this market and its products.

Understanding Software Monetization

Software is Licensed, not Sold:
•This means no doctrine of first sale, no transfer of ownership of the software copy.
•Usage rights to software, SaaS, or software-powered devices can vary over time or expire.
•License parameters are defined at development, issued for the specific customer/group of users at purchase, and enforced continuously thereafter. Piracy is a Significant Problem for Publishers and is Experienced in the Following Ways:
•Intentional use of hacked applications with defeated or disabled license management.
•Unintentional use of counterfeit software that appears legitimate.
•Over-use of software by licensed customers (by volume, time, features). Primary Goals of a License Monetization System are to:
•Efficiently define and implement licenses per target product editions and business models.
•Accurately and transparently track usage where necessary.
•Minimize unauthorized use of software applications.
•Integrate with back office for automated invoicing, billing, tracking, auditing, and more. Alternatives to Commercial Software Monetization Solutions Include:
•In-house (build, as opposed to buy) solutions.
•No license management solution at all—rely on activation, customer self-reporting, and/or audits.

Complementary Markets

The following markets are complementary to but distinct from the SLM market:
Compliance Management (CM) is used by an enterprise on its premises to ensure its conformance with software license agreements with various publishers. CM may also provide features such as license optimization or “enterprise app store” repositories. CM is sometimes also referred to as license management but is distinct from Frost & Sullivan’s use of the term. CM systems may be standalone or integrated with software asset management systems. Most CM vendors do not sell SLM solutions, but some SLM vendors, such as Flexera, offer both CM and SLM.
Application hardening is an additional layer of anti-tamper and anti-reverse-engineering protection from a 3rd-party vendor applied to a software application to protect the SLM and similar functions against hacking and to protect internal intellectual property against theft and counterfeiting.
Application analytics is the gathering and reporting of various aspects of application usage by customers. In pay-by-use models (on-premise or SaaS), analytics are directly used for billing. In other scenarios, analytics offer intelligence into application usage, facilitate compliance auditing, and can be mined to discover prospects for up-sells. Over time, analytics is expected to become closely integrated into SLM offerings.
Key vendors in complementary markets are discussed here, but revenues from complementary markets are not included as part of this analysis.

Key Questions this Study will Answer

Is the market growing, how long will it continue to grow, and at what rate?
Are the existing competitors structured correctly to meet customer needs? Are the products/services offered today meeting customer needs, or is there additional development needed?
Is this an industry or a market? Will these companies/products/services continue to exist or will they get acquired by other companies? Will the products/services become features in other markets?
How will the structure of the market change with time? Is it ripe for acquisitions?
Where are the long-term growth opportunities for this market? What disruptive technologies and trends are on the horizon?
How are market needs and customer demographics changing, and how must vendors adapt to these in order to retain and grow their market position?

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