The Great Software Payola (Part 1)

11/20/2012 8:50:22 AM

Some software costs money, some is free, but is there a real difference and can new payment models replace those we’ve come to expect?

There was a time many moons ago when very few people wrote software for computers. It was a black art of sorts, and those that did it were revered like Olympic medallists, and handsomely rewarded for generating a few desperate lines of code a day.

Now millions of people can code or build their own software using tools that do all the mental heavy lifting for you. There has been a massive increase in software available, as well as free tools and operating systems. All of these things have contributed to undermine the perceived value of software. At least that’s the message some in the tech industry are peddling.

Description: Description: Description: The Great Software Payola

Whatever the truth, it looks like the old software vending models are about to be overhauled and along with them our notions of ownership and licensing.

What are the ways you can pay for software, and how are they likely to change?

Traditional Payment Models

When software first appeared, those that created it weren’t really sure how to sell it or what sort of money they should ask for. They usually did a rough calculation based on how many they thought they might sell and the man-house they’d put into creating the program.

Usually software would be bought on a disc, cartridge or some other media. And, once you’d bought it, the ownership was yours to do with as you wished, although copyright infringement meant you couldn’t make copies and sell those or alter the workings of the software.

That created a healthy market in second hand software, where people treaded older tools with people who just wanted a version of the app and didn’t care that a new release was available.

Where the up-front payment application model breaks down to a degree is that most software houses only cover minor upgrades or bug fixes under the original transaction, and they release a whole new point release each year that isn’t covered. You’re encouraged (or bludgeoned if it’s Cyberlink’s PowerDVD) to take a discounted upgrade, but unless the OS you’re using changes so the version you bought so it won’t work, you have software that will go on working indefinitely.

From a commercial viewpoint, that’s hardly steady income, and huge fluctuations in demand and cash-flow can cause havoc to software development. You need to keep your development team staffed and active all year around, and you’re forced to repeat your marketing campaigns each product cycle.

There is also an inherent danger that if you price your product wrong your next major release won’t refill the coffers, because either people think you’re asking too much or an equivalent tool undercuts you.

Description: Description: Description: Traditional Integrated Business Model

Traditional Integrated Business Model

A very good example of this in the print industry is QuarkXpress, which was once the definitive digital publishing tool. Quark was always expensive, and it still costs $1,280.9 if you wish to buy a copy today. Its creator completely relied on the software being bought by company employees who didn’t foot the bill and who came to see it as a necessity and industry standard of sorts.

However, what it really failed to grasp was it was servicing a sector that was in decline print and that Adobe had plans to take market share from it with an equivalent product that interfaced more elegantly with Adobe’s other creative tools, such as Photoshop.

InDesign cost less, worked better with other applications and was available as part of the Adobe Creative Suite. Quark lost market share rapidly, but was still unable to grasp that the world had moved on. Scared that if it matched Adobe on price it would be perceived as commercial desperation, it stuck to its commercial guns. Quark still has a loyal core of users who often use it on the Apple mac for historical reasons, but the market share is now around to 25%, when it was once over 90%.

The single payment model has worked acceptably up till now, but due to the pitfalls of market movements, other more pervasive ways of making money from software are now replacing it.

Pay as you go

Until now, method of payment has been something that high-end CAD systems and their ilk have gone with, where the software user engages in a long-term contract, usually a year at a time.

In this model, the end user never actually owns the software at any point; they merely buy a time limited licence, which gives the purchaser the ability to easily expand or reduce the number of seats as business demands.

The downside is that you need to build a time sensitive licence management tool that can work out if the software is paid for and disable use if payment isn’t received.

In the past, many systems had their own licence server, which counted up users running a rented app, and others used dongles to stop software from migrating around a company.

Description: Description: Description: Pay as you go

With the advent of the internet, these mechanisms are much easier to create, and it’s possible to sanction application use on demand. The catch is what happens if the internet isn’t working. It’s fine if the software will work for a couple of days without phoning home, but if the software requires some sort of live activation on launch, then the loss of connection might turn the system into techno-junk.

Such a scenario wouldn’t score highly in respect of a business disaster recovery plan, and most home users wouldn’t care for it. However, it’s exactly the same deal with the devil you make if you use cloud-based tools to any extent.

There has been lots of talk about this being the direction that Microsoft wishes to take Windows and Office, as it provides a more stable income flow for the company and depending on how it designs it, piracy could be practically eliminated.

What it also achieves is to get Microsoft off the hook of point releases, because when people are renting Windows and Office, they won’t really care what versions it is, because it will always be the latest one.

What it also might do is address an issue the company has always had with regional pricing. Currently Microsoft sells Windows into many countries at a price that’s the equivalent of a year’s wages for a typical worker there. It can’t sell it any cheaper, because the grey import of the product would damage the income in those geographic regions where they can afford Windows. Because of this, the vast majority of Windows installations in many countries are counterfeit, by default.

If Windows and Office were rented, then regional price models that reflect local incomes could be considered, even if they won’t still make a huge amount in those areas.

It’s been suggested by numerous industry pundits that once Microsoft commits to this scheme, it will actually make buying Windows directly really expensive, to make sure that everyone moves to paying monthly.

The danger of this change is that should the world hit another economic hump like the banking crisis, then Microsoft’s income could be substantially cut. And, those who don’t like monthly bills or don’t have permanent internet connections might choose to go elsewhere. It looks as if that’s a gamble Microsoft is willing to take for a steady monthly income and a more exact handle on what software it’s sold at any time. It’s also another nail in the coffin of software reselling, which is something that the software industry as a whole is keen to banish.

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