Among the many monetization trends accelerated by the pandemic last year were the transition to consumption-based models and an increased focus on addressing revenue leakage. Businesses and customers alike felt the pressure of tighter funds and revenues, and companies that failed to adapt to changing needs and maximize their earnings lost market share and stability. As a result, the importance of proper usage analytics has become increasingly apparent, as has the painful reality that many companies currently struggle to understand their usage. For an expert’s perspective on the benefits and best practices of usage analytics, we invited Nicole Segerer, Vice President of Product Management and Marketing at Revenera, to speak with MGI Research analyst Andrew Dailey at the 2021 Monetize Forum.
Key Issues
What are the costs of not understanding your customers’ usage?
What challenges do companies face in moving to as-a-service models?
What best practices are emerging in dealing with revenue leakage and license compliances?
Guest Profile
Nicole serves as Vice President Product Mgmt and Marketing for Revenera, Flexera’s software supplier division. She guides product vision, strategy, roadmap plans, go-to-market planning, positioning, and marketing for Revenera. Nicole previously led marketing strategy at Acando (now part of CGI). She holds a B.A. and an M.A. in multimedia production from the University of Applied Sciences in Kiel, Germany and is a certified SAP solution architect.
Andrew Dailey
Welcome to “The Case for Software Usage Analytics.“ Tracking entitlements, managing license rights, and incorporating product usage data into development plans are really now viewed as integral to a world-class monetization capability. However, at MGI, our research shows that less than 15% of organizations today have a modern entitlements and usage management solution, and over 85% of companies struggle to maintain a single source of truth when it comes to entitlements alone.
To shed more light on what the state of the art is for adopting usage models, plugging revenue leakage, and managing entitlements, I’m joined by Nicole Segerer, Vice President of Product Management and Marketing at Revenera. Nicole is one of the leading lights on the topic of entitlement management and license compliance, and we are delighted to have her in conversation today. Welcome, Nicole.
Nicole Segerer
Hi, Andrew. Thanks for having me here.
Andrew Dailey
Let’s jump right into it and start with what the use case really is for, as you describe it, software usage analytics. Talk to us about the cost of ignoring this problem.
Nicole Segerer
Great question, Andrew. We’ve invested a lot over the past few years to add usage and analytics to our software monetization and entitlement management platform with the idea that companies cannot really monetize effectively if they don’t understand the usage of their product. First of all, managing and understanding software usage really helps product teams in making better decisions. In the past, they made decisions based on anecdotal feedback, what they heard from customers, maybe some analysis of support cases, or some research, but there was no holistic view. With usage analytics, you get to a point where you can really analyze and understand what’s happening, so you can make decisions about where to invest, where not to invest, where to grow a product, and where to put one into maintenance mode. That’s something that every software company has a hard time figuring out, and by understanding exactly what’s happening—what’s being used and how users are using that—you basically get yourself to the next level.
The next thing, as you mentioned, is consumption-based models. When you look at monetization, consumption-based models are becoming increasingly modern and gaining attention from both the software suppliers and their end customers. We see a need to go to monetization models that are more aligned with what is actually being used. Of course, in order to get there, you have to understand usage and measure it so you can bill it in the right way. It’s obviously important to measure that for a while and understand it before you even contemplate moving to a consumption-based model, so you can make a good decision on the metric and everything around that.
Last but not least, usage analytics is also really important for compliance purposes. Are your customers using more than they’ve paid for? Is there maybe even a piracy issue where you see usage from companies that aren’t your customers? These are issues that a lot of software companies today don’t understand as well as they should. Usage analytics can help to build a bigger picture of what the usage is and what percentage of it is paid versus intentional or unintentional overuse.
The cost of ignoring this is that you might not have the right data to make good decisions. It could put you at a competitive disadvantage when you’re up against companies that do understand usage, and you might fall behind because you can’t really deliver as well as these competitors on the features that your customers love and need. Also, from a monetization perspective, we see a growing need to go to consumption-based models, and if there’s a barrier to that because you don’t understand usage, that’s a price to pay. It’s not a position that software companies want to be in moving forward. There’s a success story out there about TechSmith, one of our customers that might be known to the audience here. They implemented usage analytics and actually saw a really high return on investment by better adapting the software to what their customers needed.
Andrew Dailey
Who’s the typical buyer of this type of solution? Who’s the economic buyer, and who are the typical users of the system itself?
Nicole Segerer
Very often, it starts with product management teams that have an initiative to answer these questions: “What is actually going on there? What are users doing with the product? Which areas are they using? Which modules are they using? Can we understand that better?” There is also the need for telemetry information: “What platform is my software running on if it’s on-premise?” That often starts with the product team. Sometimes, you get even higher-level strategic initiatives coming down from the C-level spurring a more data-driven program around future product development.
The actual users are widespread. It starts with product management and certainly goes into product marketing, but it also moves into engineering. We’re talking about data-driven decision-making here, and there’s nothing better for engineers than to actually get feedback on what happens with some of the features they developed and built into their product and on whether customers are using these things as intended. Then of course, when you go more into the monetization space and consumption-based business models, you will see product operations come in as well to make sure that the consumption information is collected in a way that allows it to be used for billing and invoicing.
Andrew Dailey
Got it. Many organizations today are moving from an on-premise, perpetual license model to as-a-service term license and consumption-based pricing models. What, in your experience, are the most common challenges and pitfalls that are encountered along the way? Do you see any nuances between, for example, how a hardware or physical goods manufacturer shifts to selling as-a-service and the challenges that, say, a typical software company might encounter?
Nicole Segerer
Yes, I’ll start with some of the challenges that we’re seeing, and there are two parts to that. The first part is more of what I would call an organizational or cultural challenge. When you’re looking to move to a new requirement model and a new business model, you have to overcome some misalignment within the organization, and there might be different opinions about what you should be doing. For example, think about a company moving from a perpetual model to a subscription or consumption-based model. They’re facing some risks with every change of business model, so that is something that organizations have to work on. Then, of course, there is the financial part. With any move away from perpetual licensing towards a recurring revenue model (regardless of whether that’s more of a subscription/time-based model or a consumption-based model), you go through an initial dip in revenues while you’re transitioning. That needs to be budgeted for on the side of the software company. So, we recommend companies think through these things, prepare for them, and go in with a firm plan. It’s also important for them to work with their customers because those customers will experience a change as well. It’s a change in budgeting, and they may embrace it or push back depending on how good the offer is, but that is something that needs to be taken into account.
The other challenge we see is just properly managing the software lifecycle. As we all know here in this group, the software lifecycle is complex. There are a lot of things happening between initial delivery, activation, or provisioning and the customer’s renewal: the different changes, updates, and patches as well as new versions—modules added, modules taken away. All of that needs to be managed in a central system. It will really come down to entitlements, and that can be a pitfall. If you don’t have that data together and a coherent system through which you manage the software lifecycle, the end customer may see friction there which could result in an unpleasant experience for them. So, that’s another thing that should be managed well in order to fully understand where customers are along their subscription, when their renewal is due, how likely it is that they renew, et cetera. All of these things are important to understand and build into a back office entitlement management system to successfully move to subscription.
Is it different for hardware companies? Not in terms of the solutions that they actually need. We see the technical use cases are more or less sustained, but I would say the priorities are significantly different. Hardware companies might often struggle even more with the change of mindset involved. Some of them have a hundred years of history in building machines, medical devices, or whatever it might be. Now they’re getting into software and recurring revenue, and that’s a change of mindset that shouldn’t be ignored. The transition projects can take some time, so that’s something they should plan for. The priorities for hardware companies might be a little different in terms of the use cases that they focus on. For example, they might focus more on software updates, having an accurate software bill of materials that comes with the device, or capturing additional data from that device. They have a lot of interest in the communication between the back office and the device out in the field, all with the purpose of understanding what’s happening there and having the ability to update and manage the device—which is actually even required in some regulated industries.
Andrew Dailey
Shifting gears a little bit…In the face of the pandemic’s impact on revenue growth, many companies are now focused on revenue leakage. Before 2020, the topic of revenue leakage and license compliance wasn’t very sexy. In 2021, as some organizations are really stretching to reach their revenue targets, we see increased resources being allocated to license compliance and trying to plug the revenue leakage that’s out there. What, if anything, do you see as being new in license management and revenue leakage? What best practices did we learn in the recent past?
Nicole Segerer
Yes, I agree. Even before this year, we talked about things like licensing and compliance management as part of a maturity curve. When you’re in the phase of growing your company—let’s say you’re building a startup and have 20% or 30% gross rates (or double digit…I’m not sure that everyone gets that high)—all you care about is selling more. All you care about is scaling and hiring more people, and you have neither the time nor the need to get your back office processes in order.
However, at some point, there is a phase in the maturity of a company where you have built up a bigger installed base with a good number of customers, and very often, just because you’ve grown and are a big market player, you may not grow by 15% a year. Maybe you only grow by 5%, which is just normal maturity, and there’s nothing wrong with that. This is the point where you want to make sure that you automate back office processes and take out anything that’s manual and anything that might even be leakage. This involves thinking about how you deliver software, who has access to it, and what you do when a subscription doesn’t renew and the customer should be fished out. All of a sudden, all these things become really important.
That’s compounded this year by this crisis where, for a lot of companies, revenues and gross rates haven’t been exactly what they anticipated. So, a trend we’re seeing is that there’s really more focus on compliance management because, if you can’t bring in the new business you anticipated, it’s natural to go back and ask, “Do I have any leakage?” This is where you look at compliance and analysis of intentional and unintentional overuse as I mentioned in the beginning. In terms of how you do this, there are solutions out there now (including ours) that really analyze in detail where usage is happening—whether it’s from a customer or not, if it’s piracy, or if it’s overuse—and then curate this data to a point where it becomes a real opportunity for our compliance team to act on, either by themselves or with a legal partner that manages compliance opportunities. We see companies go after that not only in their core markets like North America or Europe but also in other markets. In Asia and other areas, companies are sometimes reluctant to go after that because it’s a little bit more complicated, but done well, we definitely see success.
Trends are changing. In addition to software suppliers sometimes struggling with additional revenue this year, customers are tightening up budgets, so everything will be questioned in terms of value, and every customer will ask, “Am I really using this? Am I using what I’m paying for?” Because of this, another trend that we see is the need for a common meter between the software producer and their customer to gauge what’s actually being used. Can there be more transparency so that both sides believe they’ve found a good middle ground in how to work together? That’s being required more and necessitates that the back office systems and architecture on the software supplier’s side provide that information and work with the customers moving forward.
Andrew Dailey
I’m sure you get this next question all the time because we hear it from our clients, but I have to ask—What are your thoughts on the age-old issue of build versus buy? For companies that have built their own license and entitlement management solution, what argument would you put forth for buying an off-the-shelf solution, and what factors should companies weigh when they’re making that build versus buy decision?
Nicole Segerer
We see many of our customers contemplate this when they start working with us, and, frankly, I’m leading a product management team, so we have to address this question of build or buy ourselves. I think the first thing you should really ask yourself is, “How many resources will I need to build and for how long?” and then, “What is that really going to cost me?”
I don’t think any software company out there would say, “We have more engineers than we need.” Most of the time, you’re limited by the number of resources that you have. They determine how quickly you can get through your roadmap and how long you have to wait to accomplish what you want to in order to innovate. So, the question our customers ask (and the question we ourselves ask in making build versus buy decisions in other areas) is, “Should I really use my engineers that are experts in whatever I offer to the market to build something like a licensing and entitlement management solution or to focus on understanding of software usage? It seems like it’s not the best use of their time.” From experience and a lot of research with our customers, we know that it always ends up being more expensive than you think it will be in the beginning. While you start out with a simple use case, this use case grows, and a homegrown solution needs to be maintained over time. Very often, that’s the second consideration I think people should think about. In a lot of cases, functionality and flexibility just isn’t there.
Earlier in our conversation, we talked about changing business models. When you’re going from one to another, your licensing solution needs to be flexible. If you have a homegrown solution, usually that just isn’t the case, so at some point, homegrown solutions can become a burden from a financial perspective and a limitation on what you’re trying to accomplish with your core product. These are some of the points that I would suggest people weigh when they make a decision about building your own solution or buying a purpose-built solution.
Andrew Dailey
We’re almost out of time here, but I think we can address one last quick question. One of the themes we’ve been discussing today at the Monetize Forum is the evolving channel. B2B and B2C companies have been changing their sales channels. B2B companies are looking to go direct, some B2C companies are ramping up their B2B channels, and businesses of all types are looking to optimize their omnichannel sales motion. In your experience, what are some of the issues companies tend to overlook or underestimate when it comes to changing distribution channels and the monetization of those channels?
Nicole Segerer
I know we don’t have a lot of time, so let me make it quick and talk about two things that companies should think about. I’ll summarize the first as visibility. When you’re selling through a channel, maybe even through a multi-tier channel where you have distributors and resellers, how visible are the end customers? Do you know who these end customers are? More importantly, what do you do when you need to reach out to them? For example, if your software product has a vulnerability or there’s any other reason that you need to reach out to end customers, how do you do this? When a company’s looking to change or bring in a channel model, my advice is to think early about how that model is represented in back-office systems.
When we look at it from the entitlement management perspective, an entitlement management system would be able to represent that multi-step or multi-tier relationship in the channel, and that gives the software producer insight into the whole supply chain through to the end customer. Then, based on what’s agreed upon with the channel partners, that would at least technically allow them to reach out to the end customers to provide updates or whatever information is needed.
The other thing you brought up in your question is B2B and B2C, and there’s another consideration I would recommend there. Very often in a B2B business model, from a licensing and enforcement perspective, companies go for a strategy where they say, “It’s most important to me that I would never block my customers. If my customer is running software in their production, I can’t be responsible for it being stopped just because the license expires.” You would never cut your customer off like that in B2B. Of course, you would measure and license, but licensing would always be gentle and in a way that would never disrupt the end customer while they’re doing what they need to do.
When you look into B2C and are building up a whole new B2C business model, all of a sudden, that becomes different. B2C business models are often simpler, and in general, the rule is that as long as the end customer pays, they’re getting access to the software. When they stop paying, they don’t get access. Therefore, in a B2C use case, you would often have a stricter kind of enforcement or even contemplate shutting people down when they’re not paying or when their subscription has come to an end. Obviously, we always recommend doing this in a gentle way, sending messages out before to notify customers of what’s happening. Ultimately, though, you would still being stricter in your enforcement models. So, those are two points to consider when thinking about new channel models.
Andrew Dailey
Terrific. Well, with that, I’d like to remind everyone that more information is available at the Revenera booth, and I’m sure Nicole will be around to answer any additional questions. We’re out of time for now, but thanks very much Nicole, and thanks everyone for joining us. Enjoy the rest of Monetize Forum 2021.
Nicole Segerer
Thanks, everyone.
