Dwindling Appeal of Software License Sales

Who’s selling software licenses in the channel these days?

Truth be told, plenty of folks are as software remains big business,
especially in the higher-end world of enterprise applications. And yet,
the business model is becoming less prevalent further downstream, as
solution providers come to realize the not-so-lucrative returns
associated with peddling licenses for Office or other commodity
software packages might not be worth it. Increasingly, the choice is to
leave sourcing to the customer and focus instead on capturing the
implementation and consulting services dollars that follow after the
software is bought.

At least that’s the message I’m getting from a fair number of folks in the channel today. Case in point: When Microsoft announced last week that
it was broadening the customer eligibility for its half-off discount
special on Windows 7 Professional and the forthcoming Office 2010
Professional, I fully expected at least some outcry from partners
worried about margin erosion. But it was quite the opposite.

What I heard instead was praise for the discounting move, touted as
a shrewd way to spur customers into upgrading. These same partners
professed not to care if the licenses were sold by them either. As far
as they were concerned, customers were free to hit up retail or a DMR
as long as they took their services business to the solution provider
after the fact.

Services focus is just one of the forces behind the software license
sales ennui. Another consideration? Licensing has become a discipline
unto itself. And a headache. For example, just keeping track of
Microsoft’s plethora of licensing models, fully understanding the legal
and contractual ramifications, and then managing that for the customer
is a full-time job. Some VARs have done just that, becoming software
licensing experts as their primary focus. But for the majority of
solution providers more plugged in with consulting and managed
services, taking the time to be a licensing maven is a huge drain –
with not so much return.

The other factor at play is the move to software-as-a-service. As
more ISVs embrace a model predicated on a monthly recurring revenue for
use of software based somewhere in the cloud, what does this do to our
concept of traditional software licensing? Several varieties of
licensing models are cropping up for SaaS and which one works best will
depend greatly on the business model of the ISV, services provider or
the VAR.

Today, selling licenses in and of themselves can be financially
lucrative, but typically only if done in high-volume to large
enterprise companies. Yet, in the case of Microsoft and other major
ISVs such sales remain the domain of large-account resellers. For the
average-size solution provider, focusing your time on getting a
customer with 50 desktops to buy Windows 7 from you might not be worth
the greater payoff that comes from guiding them to a cheaper source for
licenses.

As one solution provider thrilled that Microsoft would discount its
upgrade licenses told me, the less customers spend on licenses the more
they have for his higher-value IT services.

Are you selling software licenses today or moving in another direction?