2016 SLM Study Finds Shifts in Paradigm from Anti-Piracy Towards Comprehensive Monetization
Our most recent analysis of the software licensing and monetization market shows that some core value propositions endure even as the technology and its applications undergo significant evolution and change. Software licensing solutions were originally created with the goals of preventing piracy and protecting revenue of software products. While anti-piracy remains a core feature today, the crux of the value proposition has shifted towards monetization. Moving far beyond functions such as floating license management and metering, modern SLM solutions serve to bridge chasms between finance, marketing, sales and engineering teams. This trend is closely correlated to how software businesses are evolving. Software publishers are moving away from perpetual licensing and fixed product editions in response to growing customer demand for usage-based pricing and growing use of the cloud. Hardware and embedded manufacturers are moving towards software-activated features rather than rigid SKUs as they themselves and their customers are transformed by the IoT revolution to become software-based data-driven businesses. Companies can no longer afford delays of weeks or even days for customer requirements to filter in via marketing or sales, then be implemented or customized by engineering, and then be deployed out to the client. Orders need to be fulfilled in hours if not minutes, with automation and tight inter-departmental integration becoming increasingly crucial for competitive agility. IoT, analytics and instant-on deployments are driving transformation of how products are built, selected, sold and deployed. The age of custom-built, specialized hardware is ending. We are in the age of business at the speed of cloud, where connectivity, data and analytics are transforming every aspect of business models and processes. Across the many industries and markets that the community of Frost & Sullivan analysts cover, such as industrial automation, healthcare, telecommunications and more, we are finding that profit margins are growing fastest and revenue growth is most stable for companies who are pivoting to a software mindset. This is not a straightforward transition by any means, and it is fraught with challenges and risks. SLM technologies serve as a key enabler of this transition, and an experienced SLM vendor is an invaluable partner for companies - particularly intelligent device manufacturers - seeking to modernize and fully bring the power of software and software-based business models to bear on their ongoing growth strategy. Even as we see more and more companies across a growing number of verticals embrace commercial SLM solutions for their value proposition and favorable total cost of ownership, there does continue to be considerable use of solutions developed in-house, particularly for the server and back-end components. With the advent of SaaS monetization solutions which automate metering, invoicing, billing and renewals for SaaS offerings, we are seeing growing confusion among customers between solutions for orchestrating business operations, SaaS monetization, and full-fledged SLM solutions. Specifically within the area of licensing enforcement, we continue to see a transition from hardware-based enforcement (using so-called dongles) towards electronic enforcement. While hardware is by no means headed for obsolescence, increased connectivity and lower costs and complexity lend increasing favor to electronic enforcement wherever feasible. Which brings us full circle to another key finding, which is that counterfeiting, piracy, grey manufacturing, data theft and malware infection remain serious threats for software and software-powered products. We find that modern SLM solutions are effective at tackling these threats while preserving product quality, reliability and performance. With piracy becoming a solvable problem by technology, the focus of the industry is now shifting towards more comprehensive monetization and optimization. We find that SLM revenues will approach the half-billion US dollar mark by 2022, rising to protect more than 45 billion US dollars worth of software and software-powered products in that timeframe. North America is experiencing a surge in adoption, particularly in the embedded segment, while long-term growth prospects are strongest in the APAC region. From a competitive perspective, Gemalto's acquisition of market leader Safenet changes the vendor landscape. Also noteworthy is the growing number of low-cost vendors who are catering to the growing demand by smaller publishers for some basic protection for their products as global expansion inevitably places revenues and IP at risk but high start-up costs for deploying full-fledged SLM solutions remain a barrier to entry. In addition to uptake of commercial SLM solutions by SMBs and major publishers alike, rapid adoption by embedded manufacturers and cloud-based services results in encouraging long-term growth prospects for the market.