I remember 5 or 6 years ago, at the beginning of the tech bubble when hosted software really hit the scene and the debates that ensued about which was better. It seemed people everywhere wanted to try decide which was right and which was wrong so they could move everything into the right camp. I suppose it would be somewhat more simple to do everything the same way. Over the last 5 years the hosted model has proven itself to have staying-power and we’re seeing more and more applications migrated to it (but of course, not all – who knew that both could have a place? Sheesh).
When the debate was raging, one of the key aspects was cost. People latched onto the Total Cost of Ownership phrase, in some cases I’m convinced, just to sound wiser (though of course, some truly got it).
Now, only 5 years later, something occured to me recently that doesn’t seem to be mentioned very often: licensing models (vs. licensing costs). Whenever you hear someone speak of the cost of hosted software versus desktop software, most people will look at it annually to try to make sense of this foreign “per month” concept. So a $20/month app is the same as a $240 desktop app, or a $480 desktop app if you amortize over 2 years. Both assuming we’re talking about licensing a single individual… Or are we?
Licensing up until the birth of hosted software assumed a ratio of one computer per person. The “PC on every desktop” dream had been realized some time around the boom, and five years later we’re looking at multiple PC’s per household, not to mention multiple hand-held devices, smart appliances and so on. I personally have 3 computers sitting in the home office with me, another laptop upstairs, and will be purchasing 2 new computers (for myself) within the next 2 months. Granted, I’m not the average case, but by the “parents” test, we’re moving a lot closer to an average of 2 PC’s or more in the household of many markets.
Now, hosted software is licensed differently. Yes, you already knew that: it’s per month, per user. Wait – per user. That’s important: not per machine. Hosted software really is “per user” because you can access it from any machine, from any location, even if I happen to have 5 machines sitting in front of me, all logged in as me on the same application.
Hmm. But “desktop” software is still licensed “per machine”. Yes, I know, the license agreement technically says the license is for the individual and is not transferable – but if it’s not transferable and licensed to me, why do I have to buy multiple copies for multiple machines? Because this licensing model is outdated – that’s why. One of the fundamental assumptions it was built on: one machine per person – has been busted wide open. Licensing practices haven’t caught up yet.
Now follow me here… If you have a hosted app that costs you $25/month per user ($300/year/user) and a desktop app that costs you $600 to purchase, which one is cheaper? Not including all of the other Total Cost of Ownership [TCO] points (because they tend to be outweighted by the following), it depends on how many machines you’d like to use your software with. If only one, then proceed to TCO analysis. If more than one, hosted is cheaper. You can use it on an unlimited number of machines (or devices).
If you have a machine at home, one at the office, and a laptop, or ever like to “check” your app from a friend’s place or a co-worker’s machine, that’s 4 or 5 machines that technically need to be “licensed/installed” when we’re talking non-hosted software. Ouch.
I’m not saying that all software should be hosted. I say, pick the best model for your application. But when it comes to licensing, it sure burns my bottom that I have to pay exactly the same license price for each and every machine I want to use desktop software with. There are some examples of better pricing on the desktop software, but it’s certainly not the mainstream practice yet. Apple for example, has several apps that have “family packs” of 5, for a grand total of 1.2 times the price of a single license (a 20% upsell). Seems like a great buy too me. I think they’ve got it right with respect to DRM (Digital Rights Management) for media files too, despite the unpopularity of them having their own digital format (not protected MP3′s). They let you mark your devices (PC or handheld) as being owned by you and therefor licensed to play your music. See? Licensing the individual instead of the machine or “by the copy”. Much better. Sure, they drew the line at 5 devices, but that’s a heck of a lot better than 1, which is what most traditional licensing models do. Microsoft has a student/teacher edition of Office, where you can install on up to 4 machines – why only the student/teacher edition?
Now do we think that established desktop software players will turn around and start licensing individuals instead of “copies” and keep the price point down at what the single copy price point is today? Ha. Right. Well maybe, but only if market pressure forces them to because the price of hosted software will continue to be a bargain (of multiples, 100%, 200%, 300%) as we continue to use more and more devices in our lives, and rebel against having to pay over and over again for the software.
Now sure, I’ve been in the software biz for a while, and I’m all for making money with it. And I’ve clearly demonstrated with the odd number of computers I personally use that I would have a tremendous amount to gain if desktop software licensing went to the “per user/multiple PC” model. But let’s look at the average case.
Most car insurance companies won’t give you more than a 20% discount if you insure multiple vehicles with them, even though you can’t physically be driving them at the same time! And I’m not just talking about fire and theft either, I’m talking liability insurance (like my car could leap out of the garage and kill someone what I’m at work). Say the average tech savvy user has a desktop PC and a laptop for when they’re on the road, in a coffee shop or in the boardroom. Or they need MS-Office at work but occasionally need to work from home. I would say in most cases, only one of those devices is being used by its owner at one time.
Finally, if we can’t settle on one licensing scheme that covers the average use case and diminishes the losses to vendors from the exceptions (like me who use many computers at once), then how about a little choice? Database vendors have long offered different licensing models: by the server, by the named user and by the CPU are just 3 off the top of my head.
I personally like the 5-pack idea. I think it fits the times, and offers a little bit of growth for the next few years – when a laptop and PC won’t be enough for us and we’ll need the laptop, the PC, a smart TV and our cars all to be licensed with the same software for the same users.
