Chapter 4. Business and License Model Symbiosis

Your business model is the manner in which you charge customers for your products or servicesthe way you make money. Associated with every software business model is a license model, which is made up of the terms and conditions (or rights and restrictions) that you grant to a user and/or customer of your software as defined by your business model.

The symbiosis between these models is reflected in how easily we have created shorthand terms that describe them both in the same phrase. "An annual license for 10 concurrent users with the right to receive upgrades and bug fixes" is both a business model based on metered access to the software (by concurrent user) and a license model that defines some of the terms and conditions of its usethe duration, the right to use the software, and the right to receive upgrades and patches. Still, although business and license models are symbiotically related , they are not the same thing.

Many software companies practice Model-T business and licensing model strategies. They create very few business models (often only one!) and expect each of their target markets to adapt to it. Moreover, they define relatively rigid licensing models, failing to realize that within a business model market segments will pay to obtain certain kinds of rights (like the right to upgrade) or remove certain kinds of restrictions. Rigidly defined business and licensing models may work for a new product in an emerging market, but mature markets need flexibility to capture the maximum revenue and market share from each segment. Just as we want to choose the color of our cars , so customers want choice in how they license their software.

Instead of forcing each target market to adopt a single business or licensing model, it is better to examine each target market to determine the combination that will provide you with the greatest market share and revenue. Doing this well requires that your product marketing organization understand the basics of each model and how these work in a given target market. Given the plethora of possible models, this can be a challenge.

Considering all of the work involved in creating and supporting a business model, you may wonder why software is licensed and not sold (like a pen or a coffee mug). Perhaps the biggest reason is control. If someone sells you the software like a physical good, they lose control over what you can do with it. Thus, someone selling you software can't prevent you from modifying it, reselling it, reverse-engineering it to determine how it works and using that information to make competing products, or copying it and loading it on multiple computers or making it available over a network. A physical object does not suffer from these problems, which is why nearly all softwareeven the software you're using to create your next programis distributed via license.

As one of the key embodiments of the marketecture, the business model and its licensing models may have a tremendous impact on your tarchitecture , imposing requirements throughout the system. More sobering is the fact that if your business model is the way you make money, creating the right one, licensing it the right way, and supporting it technically are essential to a truly winning solution. Missing any one of these things, for any given target market, means you might lose it all.

This chapter explores business and license models and the effects they can have on software architecture. I'll review how to make certain your business models are properly supported, discuss key license models often associated with business models, and present a few emerging techniques for making certain you're getting the most from your model. When I'm finished, you'll have the background you need to create effective business and licensing models of your own.

Business Model Nirvana

A key objective of the marketect is to ensure that the company is profitably rewarded for the value it provides to its customers. This often requires multiple co-existing business models because customers often perceive different kinds of value with different functions of a software system. In one application I worked on, the main server was licensed to customers based on transaction fees while optional modules needed for large installations were annually licensed. This combination of business models matched how our customer received value from the system and allowed us to sell to a larger total market. Transaction fees have the virtue of scaling with size in that small customers, having few transactions, pay less while larger customers, having many transactions, pay more. Thus, only customers that need them license the optional modules. Careful design of tarchitecture to support these two models was key to creating a winning solution.