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By silicon.com, 20 October 2004 15:45

How are we going to pay for software?

The long-standing tradition of licences - bought per seat and for a given period of time and version - is wearing out its welcome.

Many buyers are unhappy with the inflexibility of this system - the tedious upgrade process, maintenance fees and non-standard pricing - so they're always wondering whether they've been robbed.

Enterprise software makers are feeling the effects of customers' pain too - based on their weak earnings of late.

But the solution is far from clear. Subscription and utility models appear to be the leading candidates.

The former means selling subscriptions on a monthly or annual basis for software that's delivered over the web. salesforce.com is one example of a company that's had success here.

But the subscription model is not yet widespread. A recent survey (sponsored by software maker Macrovision, the Software & Information Industry Association and the Centralized Electronic Licensing User Group) reveals about a third of companies use subscription-based software and about half of software makers do or will soon offer such an option.

What's more, about 70 per cent of respondents say they still favour traditional software licensing models.

The utility model - paying based on how much or how often customers use the software - has also been slow to gain mainstream acceptance.

The study suggests a lack of awareness is stalling adoption. Many industry experts agree but still say it's just a matter of time before licensing as we know it isn't so common.

One roadblock is the big software makers - from Microsoft to SAP - who are proving slow to change. Why would they, when they've made billions playing the licensing game?

We don't know which model will win out - it may be both are used for different applications or perhaps there is even a third option. But we are heading toward a shift - when customers are disgruntled and sellers are losing money, it's inevitable.