The Colbert Question is an always-fun, sometimes-insightful 15-question Q&A that comedian Stephen Colbert asks of guests on his talk show.
One of the questions jumped out at me recently: “What number am I thinking of?” It’s a bit of an oddball guessing game that plays well on late night TV, with celebrities like Shaquille O’Neal answering.
Too frequently, the same kind of numbers guessing game is used in the software business. What are the numbers that represent entitlements, paid users, pirates, rates of overuse, or revenue loss, for example? Software suppliers should have the data and insights to answer these questions definitively, then make business decisions accordingly. It isn’t uncommon, though, for this information not to be tracked. The result: revenue loss through piracy, overuse, and misuse.
Software piracy, overuse, and misuse can cause revenue leakage. How much? Approximately one-third of software suppliers simply don’t know. As found in the Revenera Monetization Monitor: Software Piracy and Compliance 2022:
- 36% of software suppliers don’t know how much annual revenue is lost to piracy (the use of software that has been configured or tampered with to remove or bypass license enforcement),
- 33% don’t know how much revenue is lost to misuse (the intentional configuration of the software to enable use beyond the limits of the license, such as through cloning), and
- 32% don’t know how much revenue is lost to overuse (the use of software exceeding the limits of the license).
That lack of awareness means that these suppliers are potentially missing out on significant profits. Misuse is the single largest category of losses greater than 30% of revenue.
Data-driven software license compliance programs can help minimize these widespread issues. In today’s cloud world, revenue recovery requires accurate insights into software usage. Having a complete profile of how customers are using your product helps the company have effective conversations to ensure licensed usage, protect your intellectual property (IP), and speed your move toward usage-based monetization models and software-as-a-service (SaaS) deployments.
Software License Compliance in a Cloud World
As cloud services grow, so do the complexities of software license compliance. Software suppliers must have accurate data to determine the scope of how cloud-based issues and illegal revenue streams contribute to licensing issues and revenue leakage. Top factors include:
- Piracy-as-a-service: Anonymous organizations stand up license servers in a cloud format. A rising trend is to leverage virtual private networks (VPNs) or cloud services to host software, then provide a virtual desktop interface. Users can connect to that to get software for free. Software suppliers have difficulty matching offending organizations with these services.
- Cyberlocker sites: Thousands of sites (like NitroFlare) provide access to pirated (and often expensive) software. While in the past, payment for these purchases was somewhat complicated, mainstream payment options (e.g., PayPal, Google Pay, and Samsung Pay) have facilitated transactions on cyberlocker sites. As the use of cyberlocker sites becomes easier with the advent of cloud and easier access, problems also become more apparent. Despite past efforts to take down these sites, we’re seeing a resurgence of them today.
Data-Driven Opportunities for Software License Revenue Recovery
Fortunately, a variety of opportunities are available to help software producers minimize revenue loss. Identity management systems, user-focused licensing approaches, and appropriate monetization models can all help publishers secure a direct connection with their end-users.
Active usage data from a telemetry-based solution can quantify rates of piracy, overuse, and misuse. Telemetry-based enforcement can be targeted to see if, for example, usage of a software product initially licensed to one company has spread throughout the world to other divisions that hadn’t purchased licenses. Beyond flagging geographic regions where unlicensed use is an issue, telemetry can aid business intelligence (BI) initiatives.
Gathering data around the user base can then be integrated to support the development and enforcement of complex licensing scenarios or models. For example, consider the case where an end-user wanted temporary use of your product, but because they were limited to buying a full suite of software, they opted for a pirated option, instead. BI may show how elastic licensing (which provides access to a specific feature set for a specific amount of time) or a subscription-based model may help reduce the friction that often causes piracy and compliance problems.
Additionally, managing use rights in a single system of record provides an opportunity to broaden what you’re seeking from BI. Rather than focusing strictly on piracy, for example, you can identify specifically where overuse is occurring. Finding the gaps that previously weren’t visible or reportable helps you take necessary steps to stop the associated revenue loss. Specific entitlement-related data fields that can help identify unlicensed software usage include: activation code, customer ID, expiry date, project information, and serial number.
Remember, too, that the parameters detailed in the end-user-license agreement (EULA) can help support revenue recovery initiatives. Always be transparent and disclose what data you’re collecting.
Certain open-ended questions are great. (For the record, in my opinion, the best sandwich is steak and cheese.) But don’t leave answers about license compliance and revenue up to conjecture.
About the Author
Victor DeMarines is the Vice President of Software Monetization Product Management at Revenera. Vic joined Revenera via the acquisition of nb and was a founding member of the team since 2006. He is now responsible for leading the Software Monetization product management team. Prior to Revenera, Vic held senior product management positions at RSA Security (now part of EMC) where he drove product strategy for the company’s strong authentication, Smart Card, and enterprise Single Sign-On client products. He has also held senior product roles at Authentica where he was instrumental in defining product strategy for the company’s enterprise rights management and secure email solutions, and at AXENT Technologies and Progress Software.
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