Hardware-Based Licensing vs. Perpetual Licensing
September 15, 2020
In recent years, companies have altered their offerings through the capabilities of hardware- or dongle-based licensing, exchanging one transaction for several and converting one product into many.
In recent years, major companies have altered their product offerings through the capabilities of hardware- or dongle-based licensing, exchanging one transaction for several and converting one product into many. An appropriately scaled software licensing solution is so effective that Gartner estimated companies could cut their software budget by up to 30% just by optimizing their licensing practices.
While traditional perpetual licensing brings your company revenue just once, at the time of initial purchase, hardware-based licensing generates multiple revenue collection points based on how you decide to license your product. The most common licensing strategies are term-based, usage-based, and feature-based, each with its own perks, and they all allow you to increase your revenue.
What is licensing?
From the user’s perspective, licensing or leasing your application using a dongle means replacing one-time fees with lower start-up costs. Since the total cost of ownership is distributed over time, even businesses with low budgets can enjoy a product’s benefits. It eliminates the need for a tedious installation process, empowers the user to upgrade or renew their license quickly, and provides a better user experience through customer support and application maintenance.
This approach benefits your company, too. If you choose to offer various features, license terms, or usage terms that can be updated remotely, you can sell your product more than once. Leasing your application gives the creator the tools to create multiple revenue collection points within it. After you determine which form of licensing fits your product best, you can present it to your market by highlighting specific features, usage quantities, or durations.
These different models have their advantages:
- Tiered licensing, in which users choose from packages of features, lets you target a range of audience segments.
- Usage-based licensing is less common for software, but it makes users feel they aren’t paying for any more than what they’re using.
- Flat-fee pricing gives the user access for a specific duration, such as a month or a year, and its advantage is that it’s easy to sell and understand.
Although you’re decreasing the initial cost of your product, hardware-based licensing lets you draw new revenue streams from more revenue collection points.
Why should you license your application?
Aside from increasing revenue, many benefits come from implementing dongle-based licensing for your software, such as better management of customer support; increased product offerings; and in some cases, increased customer loyalty.
Better management of customer support
When you package customer support with diversified product offerings, you can focus on delivering the most up-to-date versions of your software to your end-users and giving them the customer support they need. Hardware-based licensing lets you pinpoint the features end-users want most and deliver those features to them efficiently.
Increased product offerings
Through hardware-based licensing, you can diversify one all-inclusive product into multiple products or tiered product offerings. This makes the product available to a broader market and lowers the startup costs associated with your application. You provide end-users with the best bang for their buck by allowing them to purchase only the features they need rather than forcing them to purchase an all-inclusive product suite.
Increased customer loyalty
Hardware-based licensing for your application boosts customer loyalty for a variety of reasons. Among them are 1) they purchased your application for a certain number of uses or for a duration of time and decide to stick with it due to the ease of conducting business and 2) they know your software and have implemented it in one or more devices, and will come back because it’s much simpler than switching to a new provider.
Why is perpetual licensing nearing expiration?
Perpetual licenses have been a standard practice for decades, but times have changed and so have the needs of end-users.
Perpetual licensing is the one-time purchase of a product, generally a large product suite such as Microsoft Office. It allows you to use that product forever, which sounds like a spectacular deal. However, when it has been offered for technological products, it has historically lacked updates and product maintenance. With the cost of those essential features added on top of the initial purchase price, this form of licensing became too expensive to purchase and pushed end-users away.
Initially, when large companies such as Microsoft, Apple, and others brought products to market, it was much easier and more convenient for them to roll the whole software suite into one. This proved a compelling offer to end-users — who wouldn’t want to purchase software once and continue to use it in perpetuity? However, behind the curtains, end-users don’t get the support or updates they would receive with dongle-based licensing for an application. They’re also deprived of the option to upgrade the features, usages, or length of time they need to use the software.
But why is perpetual licensing ironically nearing its own expiration date? In short, it’s obsolete. With technological advances and the ability to create unique and custom licensing schemes, software providers have been able to match their end-users’ needs and pair their products with the regular maintenance, support and upgrades that just don’t come with perpetual licensing.
Maintain your crops rather than hunting for a big kill
Now, I wouldn’t necessarily call myself a software guru, but I do know enough to determine that the “farming vs. hunting” mentality often involved in selling software is absolutely applicable.
What does “farming vs. hunting” mean? Hunting is going after the big meals; these are few and far between and require a lot of effort to track down. Hunting will sustain your hunger and your warmth for a bit, but it requires constant effort to stalk the next big kill.
In farming, you plant crops and regularly provide them with the nutrients and water they need. Each year they spring back up, ready to produce for you yet again. Farming is a much easier and more reliable source of food and requires significantly less legwork.
The same can be said for hardware-based licensing vs. perpetual licensing. With hardware-based licensing, you’re simply marketing and attracting customers who are already there — current users and people who have already shown interest in your application. On the other hand, with perpetual licensing, you’re always looking for new customers, blind to the fact that they’ve been there the whole time, already in your pipeline.
When you consider that your likelihood of selling to a customer you already have is 60-70%, while for a new prospect it’s only 5-20%, there’s no reason to hunt. By leaving the old perpetual licensing model behind in favor of farming your established customer base, you can create new revenue streams and take your users to new levels of satisfaction.
About the Author
Conner Zinanti graduated from Metropolitan State University of Denver and is currently working as the Sales Specialist for KEYLOK out of Lakewood, Colorado. KEYLOK, a 40-year industry leader of providing unique hardware-based licensing and security strategies to small, local-based companies all the way up to fortune 500 companies.