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Software Licensing for Public Financial Management


September 29, 2009

Representatives from Caribbean governments participating in the CARTAC FMI Conference in Belize questioned software company license schemes. Many government representatives felt that vendor licensing methods and costs are too high, particularly during a time when revenue has dropped because of the financial crisis.

FreeBalance provides flexible licensing options to make software for public financial management more financially sustainable.

Licensing Trends

The enterprise software market has matured. Post-sales maintenance represents the largest revenue contributor for large software companies.  Many software companies are attempting to increase revenue from service, support and licenses. Some companies have become more active in auditing customer implementations to find more revenue.

Most enterprise software vendors have stopped “concurrent” licensing in favour of “named user” licensing to optimize revenue. This trend is not good news for customers. Almost all vendors provide a sliding scale of quantity discounts. This model has come under fire. Some vendors are providing software license models that relate better to customer value.

Licensing Methods

Software vendors are providing the following licensing options:

1. Tied to size of servers used based on processors, processor speed and memory

  • Advantage: does not require monitoring the number of users
  • Disadvantage: many customers purchase larger computer capacity than needed & formulas can be difficult to use

2. Concurrent licenses based on the maximum number of users at one time

  • Advantage: can be a better value to customers than named users
  • Disadvantage: often requires buying sufficient concurrent licenses to handle peak times

3. Named user licenses

  • Advantage: ensures that full-time users can use the system
  • Disadvantage: often high costs, particularly for organizations with occasional users of the software

4. Occasional user licenses (generally with a subset of functionality enjoyed by named users)

  • Advantage: provides option for infrequent use and can provide a good value
  • Disadvantage: formula for occasional users may not match usage and the subset of functionality may not be relevant

5. Monthly rental, typically by users as used in Cloud Computing

  • Advantage: enables acquiring or releasing licenses to match changing requirements, usually includes maintenance and is particularly attractive for growing organizations
  • Disadvantage: often requires up-front costs, charges by named user and the total cost over time can exceed typical license schemes

6. Site and Enterprise licenses

  • Advantage: organization can negotiate a good price and not be concerned about additional costs for new users
  • Disadvantage: often negotiated based on future projected users meaning that there can a lack of usage creating so-called “shelf-ware”

7. Costs based on Customer Budget or Total Employees

  • Advantage: often used for enterprise licenses and can provide a way to link cost with value
  • Disadvantage: total budget or total number of employees does not always relate to value in many organizations

8. Cost or Efficiency improvements

  • Advantage: vendor shares in the value of improvement
  • Disadvantage: formula is often difficult to enforce and many customers will find other methods less expensive

Best Value for Government

Software vendors need to be flexible by combining many licensing methods to provide effective value to government organizations. Large governments can leverage tbe buying power of blanket contracts to optimize prices.

Caribbean governments do not have the buying power enjoyed by G7 countries. And, there are characteristics that need to be considered in software licenses including:

  • Relatively large number of occasional users or users of specialized components rather than entire modules
  • Relatively large size of the civil service where teachers, military and police are part of the Government establishment
  • High burden of the financial crisis including the availability of cash to pay for needed licenses and post-warranty maintenance
  • Need to optimize the entire cost to the government, not just licenses
  • Staff turnover that can make some license models difficult to maintain

These considerations need to be mapped against different licensing models. Software vendors should support a combination of models because the profile of usage can differ throughout the budget cycle. For example, most budget preparation users access the system for a limited time once a year. Accounting users are often use financial software most of the day and leverage almost all software features. Yet, goods receiving clerks use only a portion of software. That’s why FreeBalance enables government customers to combine license methods to achieve the best value.

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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