Ensuring Technical Readiness For Copilot in Microsoft 365
Five Best Practices for Streamlining Electronic Licensing Operations
1. W H I T E PA P E R
Five Best Practices for Streamlining
Electronic Licensing Operations
2. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
Five Best Practices for Streamlining
Electronic Licensing Operations
Executive Summary Introduction
The last five years have witnessed a dramatic adoption of Software publishers who implement electronic licensing
electronic licensing among software publishers. Publishers to price, package and protect their products still face the
claim that this is one of the easiest ways to accelerate challenge of how to create seamless licensing processes—for
a product’s revenue growth. Electronic licensing enables themselves, their channel partners and their customers.
software publishers to flexibly price and package their
applications in any way that their customers want to buy Most publishers already have some combination of ERP and
their products. At the same time, electronic licensing prevents CRM systems handling processes related to quotes, orders,
revenue loss from unauthorized software use. Electronic contracts, customer data and customer support.
licensing is becoming a standard part of most software
applications, not unlike software installers. However, license and entitlement management processes are
different for publishers using electronic licensing and are
While the benefits of electronic licensing are overwhelmingly not typically handled well by today’s ERP/CRM applications,
positive, publishers transitioning to electronic licensing are leaving publishers to build homegrown applications as
often caught off-guard by the morass of manual processes a consequence.
they end up using to manage their licensing operations.
Inefficient, time-consuming manual processes have a More often than not, publishers underestimate the time
negative impact on costs as well as customer satisfaction. and cost required to create efficient and end-user-friendly
A not-so-obvious reality of electronic licensing is that once processes for managing licenses and entitlements using their
licenses are issued by a publisher, they take on a life of their own internal resources. The following scenario occurs all
own. Therefore, it is critical for publishers to proactively too often when publishers begin transitioning to electronic
define operational processes for electronic licensing and licensing using homegrown approaches:
streamline them up front.
software publisher launched a new product with
A
This paper begins by outlining the business processes electronic licensing. The product consisted of six
that make up the license lifecycle, which helps us identify components (a design time tool, a run time server
potential operational blindspots publishers must take care component and four applications) that were turned “on”
to avoid. Next, we introduce the five best practices for or “off” based on the license. A major customer, ABC
streamlining the license lifecycle, which Flexera Software Company, purchased the product with all six components,
developed after working with hundreds of publishers to along with Gold level support. The customer was instructed
implement effective electronic licensing. Based on that to install six license files, one for each component. When
experience, we provide a framework for the “build versus the customer installed the product along with the license
buy” decision for an operational application that automates files, they found that only five of six components were
the licensing lifecycle. The paper concludes with a brief activated. When ABC Company emailed tech support,
description of how Nokia successfully anticipated and they received a second license file that activated the
addressed operational issues prior to launching electronic missing component as well as one of the others. In
licensing in their products. addition to being totally different from each other, the
initial and corrected license files also indicated different
support levels, though the customer knew that they had
ordered Gold level support.
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3. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
Nine months later, when ABC Company contacted the A Day in the Life of a License
publisher to upgrade their software, they received license While concepts such as “Product Lifecycle” and “Customer
files that authorized only five users—despite the fact Lifecycle” are well understood by publishers, surprisingly few
they had originally purchased licenses for 20 users. ABC publishers transitioning to electronic licensing realize that
Company also discovered that they were once again licenses have a life of their own. A first step to streamlining
missing one component key altogether. electronic licensing operations is to recognize this lifecycle.
So what are we talking about?
ABC Company used the publisher’s product in a mission-
critical internal project with tight schedules. Given the Based on our experience helping publishers implement
recurring nightmares with license files, and their impact on electronic licensing over the past two decades, we have
internal schedules, ABC Company decided not to bother identified seven processes that make up the license lifecycle
upgrading at all in the future. (refer to the glossary at the end of this document for an
explanation of terms), as shown in Figure 1:
Unfortunately, scenarios like this are common in the
1. reate new product or package.
C
software industry and have significant negative impact on
2. ntitle customers to the product (and maintenance or
E
profitability and customer satisfaction. Consider these facts:
support that goes with it) based on their orders in an
• Publishers lose 5-10 percent of their gross profits
ERP or CRM application.6
because they are unable to flexibly price and package
3. eliver and install product.
D
their software due to operational issues.1
4. ctivate license (may be demo/evaluation or
A
• Publishers spend on average between 1-2 percent2 of
production licenses).
their gross revenues just on generating and fulfilling
licenses from customer orders. 5. anage license and entitlement changes (e.g. return/
M
rehost licenses; transfer/merge/split entitlements).
• Publishers spend approximately $363 per support call
related to licensing issues—most of these calls are 6. pdate maintenance-paying customers.
U
avoidable. Supporting customers who are not entitled 7. psell or renew licenses.
U
to receive support is another unnecessary and
avoidable expense.
Packages
• Many publishers lose upgrade and renewal revenues
ate Or
Cre de
r/
because they are not able to track their installed base
ew
En
usage at the granular level of product version4.
t
en
it le
l l/ R
• Publishers spend on average between 0.1 – 0.3 percent
Upse
of gross revenues adapting a homegrown application
Deliver/Install
to support licensing and packaging changes.5 License
Mainta
Lifecycle
These costs can easily add up to hundreds of thousands of
i
dollars a year for a reasonably sized publisher. This paper
n/ U
demonstrates that using a best-of-breed application to
pd
at
e
automate license management processes helps publishers at
e
Ret t iv
urn/ Ac
maximize profits by: Rehost
• Maximizing revenues through flexibly pricing and
packaging software. Figure 1: License Cycle
• Minimizing license generation and fulfillment costs
Publishers and intelligent device manufacturers, to an even
• Reducing customer support calls pertaining to licensing
greater degree,7 selling through channel partners have the same
and non-entitled users. lifecycle processes as above, except that they have to deal with
• Maximizing renewal and upgrade revenues by tracking
an additional layer of complexity introduced by the presence
customer purchases. of an intermediary who may create orders and licenses as well.
• Minimizing IT costs for developing and maintaining a
In many cases, companies are supporting a model where the
homegrown operational application. end-user remains anonymous, i.e., the customer is owned by the
channel partner. In other cases, publishers want to know more
about end-users and register them prior to activating licenses,
even if they order through the channel.
1. ource: McKinsey and Company, October 2003
S
2. ource: Flexera Software estimates based on customer surveys. Higher end of these figures typically apply to small publishers using manual processes to
S
generate electronic licenses.
3. ource: “Technical Support Cost Ratios,” SoftLetter, The Association of Support Professionals, 2000. These figures are based on average support call costs for
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software publishers. There is no evidence to suggest that licensing related support calls cost more or less than the average support call.
4. n a related note, enterprise customers are demanding better approaches to ensure that they are able to be in compliance with their publisher agreements—
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tracking the installed base is a necessary first step to provide the required capability.
5. ource: Flexera Software estimate based on customer surveys.
S
6. ote that for a demo or evaluation license, no orders are typically required, though a customer entitlement still needs to be created.
N
7. e have found that intelligent device manufacturers (such as Nokia, Cisco) face these issues more often than software producers because of their more
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widespread use of channels
Flexera Software: FlexNet Operat ions White Paper Series 3
4. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
Mapping out the license lifecycle is the first step towards 3. Enable self-service. Activating a license,
automating licensing operations—the key to higher providing temporary licenses on an
customer satisfaction and lower operational costs. emergency basis (e.g., when an end-user’s
machine becomes unusable) or moving
The Zen of Streamlined Electronic Licensing Operations licenses from one machine to another (i.e., a re-host) are all
What does it take to implement efficient operational examples of license lifecycle processes that can be manual
processes for the license lifecycle outlined above? We have and costly tasks for a publisher. Several nuances of these
identified five best practices based on Flexera Software’s business processes may also occur based on the licensing
experience with publishers (see Figure 2): model such as partial fulfillments, partial returns and partial
rehosts (see glossary for a description). Publishers that allow
1. Ensure change readiness. Publishers their end-users and channel partners to self-serve license
embarking on electronic licensing must lifecycle processes minimize operational costs, support calls
assume changes are inevitable, and in many and associated costs. Given that over 50 percent of large
cases, should expect them on a continuous and medium-sized companies manage over 40 software
basis. An IDC survey revealed that: contracts9, self-service also enables enterprises to mitigate
• 60 percent of software vendors make licensing changes
some of this “complexity crisis” by helping them track what
every year, and they bought and stay in compliance.
• 33 percent of software vendors that made licensing
changes in a previous year, plan on making changes in 4. Make licensing invisible. End-users should
the following year.8 not have to know about electronic licenses
Most software publishers and intelligent device at all—all they care about is how to order,
manufacturers have to deal with the inevitability of mergers install and use the publisher’s product/
or acquisitions. When these happen, an often overlooked manufacturer’s device, and get upgrades when they choose
but critically important change is the impact to the licensing to do so. Publishers and intelligent device manufacturers
back office. Frequently new license key generators or new should create an end-user experience that enables “hands
licensing technologies must now be integrated into the free” activation requiring minimal user input. For example,
existing back office, which may not be able to handle this. when users install Adobe’s line of products, the only input
As a result, large vendors over time can end up with required is the serial number on the CD (or a serial number
several homegrown and third party license key generators they receive via email). The software is “turned on” without
which drive up operational costs and result in a poor users being aware that they just received a software license
customer experience. from Adobe.
On an ongoing basis, changing business and licensing 5. Track license and entitlement histories.
models often result in modifications to licensing processes As licenses get generated, publishers can
and end-user-facing interfaces. For example, a publisher that accumulate a wealth of information about
is introducing node-locked licensing for the first time would what customers actually installed at a more
need to capture parameters of their end-user’s machines prior granular level than an ERP or CRM application allows—and
to generating a license, while in their prior license models, more specifically, answer questions such as:
such information may not have been required. Publishers • hat products and versions does Customer ABC have?
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are, therefore, better served by operational applications • n an average, how long do customers wait before
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that anticipate such changes and can handle them cost- they activate our products?
effectively. Put simply, publisher’s operational applications • hich customers have Product A, version 5.6?
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should be “change-ready”. • hich platforms have our customers purchased?
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• hat entitlements does Company ABC have?
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2. Avoid manual handoffs. For most publishers
an electronic license requires information from a. ow many licenses have they purchased versus
H
orders, such as the product or SKU number. what they have already installed?
Manual handoffs between a publisher’s order b. hich products have they purchased that are
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management system (i.e., their ERP/CRM still current on support and maintenance?
application) and the licensing operations application should • hat activations has Company ABC received in the
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be eliminated. Publishers must recognize that electronic last 12 months?
licensing impacts several operational areas, including sales • hat license and entitlement changes has Company
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operations, order entry/fulfillment operations, customer ABC done in the last 12 months (e.g., what is their list
support and IT. A solution that automates any part of the of license returns)?
license lifecycle process will touch those areas as well.
8. Future of Software Licensing Study”, IDC, 2004
“
9. Future of Software Licensing Study”, IDC, 2004
“
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5. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
1. Ensure “change-readiness”
...to cost-effectively handle
new packaging or pricing.
2. Avoid manual handoffs
Packages
ate Or ...with ERP/CRM systems.
Cre de
r/
5. Track license
ew
En
t
en
entitlement histories
it le
l l/ R
...at a more granular level.
Upse
License
Deliver/Install
Lifecycle
Mainta
n/ Ui
3. Enable self-service
pd
at
te ...for end-users and channels.
e
Ret t iva
urn/ Ac
Rehost
4. Make licensing invisible
...to end-users.
Figure 2: Five Best Practices
This information is a goldmine for publishers—as they - The more we build out our homegrown app, the
“
plan upgrades and renewals, they can maximize those more it is costing us to maintain it as changes
revenues. They can also avoid support calls and costs for happen… changes to license models, upgrades
customers that did not pay to get support (i.e., “unentitled” to our ERP, changes to end-user-facing interfaces
customers). Customers benefit too, by knowing what they we have 2 FTE (full time equivalents) focused on
have installed and staying in compliance with their contracts maintaining our in-house system…”
with publishers. —Office equipment manufacturer with $200M
in gross revenues
To Build or Buy…That is the Question • “Bad data, bad key” resulting from the poor integration
The five best practices for operational excellence apply of the operational application with order management
whether publishers or intelligent device manufacturers build systems. This often causes manual processes and error-
their own operational application or buy one off-the-shelf. prone licenses, as the following anecdote highlights:
So which is better: building or buying an application for
licensing processes? - Order entry person takes an order printout from
“
SAP, looks up a paper license configuration
Needless to say, software publishers and intelligent device document to find list of features for product
manufacturers are experts in software development. (As and then enters feature list and machine serial
a result, many might suspect that building an application number into the “License Editor” (homegrown
in-house to support electronic licensing operations will application) to generate licenses…customers go
be easy.) However, the actual experience of publishers through the entire installation process assuming
building homegrown applications for managing the license the keys they received are correct. As they use
lifecycle indicates that there are several pitfalls they have the product, they find they are missing features or
encountered. These pitfalls frequently result from: components they paid for because their licenses
• Underestimating changes to business and licensing
are incorrect…”
models. Every time a publisher goes through a merger —Large Medical Equipment Manufacturer
or an acquisition, or wants to change their licensing, • Poor understanding of the license lifecycle. Once a
they need to overhaul their operational systems. Ideally, license is generated, it takes on a life of its own. The
you would want that flexibility built in to gain potential lifecycle includes activities such as replacing lost
new revenues from flexibly pricing and packaging your licenses, processing license returns or rehosts, merging
software. As the IDC survey cited earlier points out, or splitting of entitlements and facilitating upgrades
license and business model changes are constant in the and renewals. Most homegrown solutions fail to
software industry—as more publishers are finding out, anticipate and manage these types of changes that
these changes can be very costly to operationalize. typify licenses and entitlements.
Flexera Software: FlexNet Operat ions White Paper Series 5
6. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
Consider the examples below from large software - I struggle with four component keys with different
“
producers that have built and maintained their own expiration dates located in four different places.
operational applications: Whenever I launch the product, a portion of the
- Customer license files are very large and
“ product may not work because of an expired
continue to grow. We regenerate the entire license…It is a real pain.”
license file each time a customer install-base — ustomer of a leading enterprise software
C
record is touched or changed in any way (i.e., publisher
new purchase, maintenance renewal, rehost, - Thirty percent of customer support calls pertain
“
upsell or update). Customers have no way to to lost keys or customers that cannot find their
easily identify exactly what changed or what is machine’s HOSTID”
the difference between the “before” and “after” —Large server intelligent device manufacturer
license file. We have no easy way to assist the • nability to identify upsell and renewal opportunities.
I
customer here.” Because publishers cannot track installed base license
—Large publisher of Electronic Design and entitlement histories, they lack the ability to
Automation software proactively identify upsell and renewal opportunities. As
• oorly designed customer experience. Most publishers
P it relates to support entitlements, poor tracking causes
would not be in business if their products were as some customers to be denied support they are entitled to,
poorly designed as their customer-facing licensing while other users may get support without paying for it.
processes. Often, publishers make customers go - By scanning the spreadsheets I use, I could catch
“
through multiple installations and keys with unintuitive a few customers here and there who are not
user inputs such as HOSTIDs. Such problems are current on maintenance…But with 10-20 percent
exacerbated for publishers that integrate products from of 50,000 customers being “problem” customers,
other publishers in an OEM relationship or acquired as we require several thousand manual checks”
part of a merger. —Inside Sales Manager of an enterprise
software publisher
Pitfall: Homegrown Best Practice: Operational Cost/ Empirical Cost/Benefit Data10 (where available)
Approach 3rd Party Application Revenue Impact Homegrown Approach 3rd Party Application
Underestimated license Ensure “change ready” Lost revenue due to 5–10% of gross profits Maximize revenues with
business model applications inability to operationalize lost flexible pricing and
changes licensing and packaging packaging
changes
IT costs to maintain 0.1–0.3% of gross IT costs can be reduced
operational application revenues by more than 50%
compared to homegrown.
“Bad data, bad key” Avoid manual handoffs License generation 1%–2% of gross revenues Can be reduced to zero
between orders, fulfillment costs depending on level of
entitlements and licenses self-service and ERP/CRM
integration
Poor understanding of Ensure self-service for all Support costs for license $36/support call. Some Can be reduced
license Lifecycle license lifecycle processes entitlement changes estimates claim over 30% significantly via end user
of support calls pertain self service and “hands
Poorly designed Make licensing invisible
to changes such as lost free” activation
customer experience to end-users
keys, rehosts, splits/
merges etc.
Inability to identify Track license Upsell renewal Revenues lost because of Proactive renewals and
upsell and renewal entitlement history revenues poor tracking of installed upgrades would likely
opportunities base increase renewal
upgrade revenues by
5–10%
Support cost avoidance Example in year 1, customer Can be reduced
for unentitled users bought 3 products, dropped significantly by tracking
support on 1 product in of the installed base at
year 2. If that product gets the level of products and
3 support calls/year, each their versions.
costing $500, then the
publisher incurs $1500 in
extra costs.
Table 1: Summary comparison of homegrown vs. best-of-breed third party application
10. Source: Flexera Software estimates based on customer surveys:
6 McKinsey Co. SoftLetter. Flexera Software: FlexNet Operat ions White Paper Series
7. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
Revenues
From New
Packages
Upsell
Savings
Revenues
Renewal Bottom Line
Revenues Impact
Cost
Savings
IT Costs Reduced Costs
Fulfillment Costs
Costs
Customer Support
Costs
(license entitlement
changes)
Best of breed
Homegrown third party
application
Figure 3: Summary of cost savings and revenue increases from a best-of-breed license and entitlement management application
- Customers admit that there is no way that they can
“
Streamlining Electronic Licensing Operations at Nokia: be 100 percent compliant. Vendors estimate non-
A Case Study compliance at 20 percent. This amounts to a $40B
problem.”
Nokia Business Systems is a division of Nokia that
focuses on Internet infrastructure solutions. The division’s —IDC
products were the first to use electronic licensing in Nokia Because of these pitfalls, in-house applications raise
history. Because the division sells primarily through its operational costs and often fail to track upsells and
channel partners, it was critical to account for channel renewals, resulting in lost revenues, as summarized in Table
processes as part of streamlining licensing operations. 1 and Figure 3.
Nokia has automated key license lifecycle processes Beyond these cost and revenue impacts, some other
using Flexera Software’s FlexNet™ Operations: considerations when deciding whether to build or buy an
operational application include:
• End-user entitlements are created automatically from
• oes maintaining your own solution detract from your
D
their orders in the SAP system core product development objectives?
• Channel partners and end-users can self-serve
evaluation and production licenses from the Nokia • hat are the risks of not completing an in-house
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portal. They can also manage license changes— solution on time? What is the effect on product
upgrades, downgrades, transfers and version ship dates, customer satisfaction, IT budgets and—
updates from the Web. ultimately—overall profitability?
• Customer installed base records in Nokia’s Vantive
• s the system able to provide business owners with all
I
CRM application are updated with their licensing the data they need to make better business decisions?
histories to enable tracking of upgrade and renewal
opportunities In addition to the financial benefits, buying a proven
license and entitlement management solution from a trusted
Summarizing Nokia’s transition to electronic licensing, third party that incorporates the five best practices for
Chandra Shekar, director business systems for Nokia, streamlining operations is the “safe” choice for publishers.
says, “Thanks to the FlexNet platform, we’ve been able to
create and enforce a license model that closely matches
Conclusion
how customers perceive the value of our products. Back
To minimize the operational costs of electronic licensing,
office systems and processes are also integrated into
publishers and device manufacturers must create seamless
the licensing lifecycle, enabling seamless, self-service-
operational processes for license and entitlement
based licensing operations.” Such “seamless, self-service-
based licensing operations” allows Nokia to minimize management. They can best achieve this by selecting an
operational costs while ensuring customer satisfaction. application from a trusted vendor that adheres to the five best
practices for streamlining electronic licensing operations.
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8. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
For More Information FlexNet Operations provides a single entitlement tracking
FlexNet Operations, part of the FlexNet Suite, is a key system that enables producers to quickly create versatile
component of Flexera Software’s Entitlement Compliance product configurations, allows management of multiple
Management Solution, enabling software producers and licensing technologies, provides a unified customer
intelligent device manufacturers to increase revenues,reduce experience, and facilitates prompt revenue recognition.
support costs, and simplify customer relationships.
Appendix
Glossary of Terms
Term Definition
Entitlement What the customer bought. Can be of three types: Product, Maintenance (right to updates of
software such as patches, updates under maintenance), Support (right to call tech support)
Entitlements specify the product, the quantity and duration plus related entitlements (e.g.,
product includes maintenance). Example, an entitlement might be for 10 copies of Product A,
lasting for one year.
Fulfillment Represents what the customer installed or redeemed against an entitlement.
Activation Synonymous with fulfillment.
HOSTID A unique identifier for an end-user's machine- can be one or a combination of IP address, MAC
address, Disk Serial Number and so on.
License A license file enforced by the application.
Rehost The process of moving a fulfillment (partially or fully) from one machine to another. A rehost does
not change the quantity of unredeemed entitlements. A repair is a full re-host.
Renewal Resets the date on an expiring entitlement.
Return The process of banking a fulfillment (partially or fully) with the publisher, resulting in an increase
in the unredeemed entitlements. Similar in spirit to a product return allowed by a retail store.
SKU Stock Keeping Unit. A number that uniquely identifies an orderable product in an ERP system.
Update A free upgrade from Product A to Product B assuming the customer is current on maintenance.
Upsell A paid upgrade from Product A to Product B.
Entitlement Transfers/ Entitlement Transfers: Customer ABC bought 10 licenses for Product A, which is since used by
Splits/Merges Department 1 of ABC. Customer ABC wants to transfer the licenses to Department 2 because
Department 1 no longer needs them, which is the process of transferring the entitlement from
Department 1 to 2. Entitlement Splits: Channel partner EFG bought 100 licenses to Product
A. They wish to sell 45 licenses to Company 1, 20 licenses to Company 2 and 35 licenses to
Company 3. They would have to split their original entitlement to accomplish this. Entitlement
Merges: Customer ABC bought 10 licenses for Product A. Customer XYZ bought 15 licenses to
Product A. Customer ABC merges with Customer XYZ. Customer XYZ would like to consolidate
their 25 entitlements to A under its own name, representing a merge of entitlements.
Partial Fulfillments If an end customer buys 10 licenses from a publisher, partial fulfillment allows the end-user
to fulfill these licenses in batches, up to the total number of licenses purchased. In addition to
fulfilling individual licenses from the same order, vendors can allow partial license durations
to be obtained from a single license. This feature allows an end user to check out a license for
several days on one computer while other licenses are concurrently fulfilled on other computers.
In effect, it enables a very secure form of license borrowing.
Partial Returns and These are situations where an end-user wants to move, for example, 10 out of 100 licenses from
Rehosts one machine to another (partial rehost) or return 15 of 40 licenses for a credit from publisher for
other products (partial returns).
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9. Five Best Pract ices For Streamlining Electronic Licensing Operat ions
About Flexera Software
Flexera Software is the leading provider of strategic
solutions for Application Usage Management; solutions
delivering continuous compliance, optimized usage and
maximized value to application producers and their
customers. Flexera Software is trusted by more than 80,000
customers that depend on our comprehensive solutions-
from installation and licensing, entitlement and compliance
management to application readiness and enterprise license
optimization - to strategically manage application usage
and achieve breakthrough results realized only through the
systems-level approach we provide. Flexera Software is a
privately-held company and an investment of private equity
firm Thoma Bravo, LLC. For more information, please go to:
www.flexerasoftware.com
Flexera Software: FlexNet Operat ions White Paper Series 9