I help hundreds of technology buyers each year to understand the impact of technology changes on their software contracts, but I also get questions from software providers about how best to price their products. Some are bringing new products to market and want to know how to maximize revenue, while others are struggling with obsolete metrics such as per processor and want to update their pricing for the modern mobile, cloudy world. The answer is usually to find licensing metrics that make their pricing value-based while balancing simplicity and fairness. The more value a customer gets from your product, the more they should be willing to pay for it. If you make your pricing too simple then you won't match value sufficiently closely, which will cause you to price yourself out of some deals and leave money on the table in others. If, OTOH, you try to match value too precisely you risk making your pricing so complicated that buyers will reject it, and you, completely.

For example, suppose you have a product that will help people do their jobs better, so you decide that charging for each user will be a good approximation for value. The potential problem is that not everyone will use your product the same, in terms of depth of functionality and/ or frequency of access. Your single per user price will be unfair to companies with long tails of light, infrequent users, for whom you'll therefore be too expensive. Conversely your pricing will be unfair to you when the customer is mostly power users. To make your pricing fairer you could have different prices for different categories of user, but then you risk being criticized for being too complex.

I’ve just returned home from San Francisco where I was attending the Oracle Openworld 2011 (#OOW11) event. Overall it's a good event, although, as usual, a bit frustrating. Instead of examples of how customers are using its products to transform their businesses, the Oracle keynotes always descend into technical detail, with too little vision and too many unimpressive product demonstrations and ‘paid programming’ infomercials (if I had wanted to listen to Cisco, Dell, and EMC plugging their products, I’d have gone to their events).

When, a month ago, I accepted Oracle’s invitation to attend #OOW11, I thought I’d be able to escape the oncoming British autumn for some California sunshine and watch some Redsox playoffs games on TV. Well not only did the Sox’s form plummet in September like a stock market index, but Northern California turned out to be 20° colder than London. But despite that, and the all-day Sunday trip to get to the event, one can’t help being impressed by the attendee buzz and by the logistical achievement, with over 45,000 attendees accommodated around the Bay Area and bussed in and out every day to the conference location. Luckily, Oracle looks after its analyst guests very well, so we were within walking distance at the excellent Intercontinental Hotel.

The lines are blurring between software and services — with the rise of cloud computing, that trend has accelerated faster than ever. But customers aren’t just looking at cloud business models, such as software-as-a-service (SaaS), when they want more flexibility in the way they license and use software. While in 2008 upfront perpetual software licenses (capex) made up more than 80% of a company’s software license spending, this percentage will drop to about 70% in 2011. The other 30% will consist of different, more flexible licensing models, including financing, subscription services, dynamic pricing, risk sharing, or used license models.

Forrester is currently digging deeper into the different software licensing models, their current status in the market, as well as their benefits and challenges. We kindly ask companies that are selling software and/or software related services to participate in our ~20-minute Online Forrester Research Software Licensing Survey, letting us know about current and future licensing strategies. Of course, all answers are optional and will be kept strictly confidential. We will only use anonymous, aggregated data in our upcoming research report, and interested participants can get a consolidated upfront summary of the survey results if they chose to enter an optional email address in the survey.

Two months ago, we announced our upcoming Forrester Forrsights Software Survey, Q4 2010. Now the data is back from more than 2,400 respondents in North America and Europe and provides us with deep and sometimes surprising insights into the software market dynamics of today and the next 24 months.

We’d like to give you a sneak preview of interesting results around some of the most important trends in the software market: cloud computing integrated information technology, business intelligence, mobile strategy, and overall software budgets and buying preferences.

Companies Start To Invest More Into Innovation In 2011

After the recent recession, companies are starting to invest more in 2011, with 12% and 22% of companies planning to increase their software budgets by more than 10% or between 5% and 10%, respectively. At the same time, companies will invest a significant part of the additional budget into new solutions. While 50% of the total software budgets are still going into software operations and maintenance (Figure 1), this number has significantly dropped from 55% in 2010; spending on new software licenses will accordingly increase from 23% to 26% and custom-development budgets from 23% to 24% in 2011.

Cloud Computing Is Getting Serious

In this year’s survey, we have taken a much deeper look into companies’ strategies and plans around cloud computing besides simple adoption numbers. We have tested to what extent cloud computing makes its way from complementary services into business critical processes, replacing core applications and moving sensitive data into public clouds.