Nalpeiron Software Monetization Maturity Model

Hi. As companies look to better monetize their offerings and generate more predictable recurring revenue, you know, we really see this as a journey as opposed to an individual specific project.

And the general approach that we see in terms of best practices adheres to what we would call the software monetization maturity model, meaning that as you become more sophisticated and are better able to monetize and automate the monetization of your products. It really goes against this curve. And so often companies will start out with very simple models. They may just specifically be looking to achieve product-market fit within their given industry, And so they're really focusing on delivering value to the customer as opposed to monetization. So a perpetual-based model may well make sense at that stage of the company.

Then often as they continue to invest in the software, they've got an installed base of customers, and they're bringing out upgrades, new capabilities, new features, they want to be able to get paid for that ongoing investment into the product line. And that's often where maintenance comes in. So this gives the end customers who purchased a perpetual license, the right to upgrade to the latest version, get access to the new capabilities, new features, and so forth. And, you know, typically we've seen maintenance fees of anywhere from fifteen to twenty five percent of the original cost of that perpetual license. And so that at least starts to help the software company monetize that ongoing investment in software.

Then often companies, especially driven by the needs of finance, will say, okay, we've still got this large amount of money around perpetual licenses, relatively small amount around maintenance. And so we need to have a bigger base of predictable recurring revenue. And that's often when companies will start to switch into subscription based models. And of course, we've seen a number of companies over the years make significant changes to their business model, such as Adobe with Photoshop, moving from a one time license fee to an ongoing annual subscription.

Sometimes that transition can take a number of years to execute.

Once people have sort of adopted that subscription approach, often they'll now want to target individual subsegments, and they may want to have differentiated offerings. So still all subscription but targeting specific groups or capabilities so they may have a low-end version that they can monetize to a broad base of, users as well as having a really high-end or customer enterprise edition where they really want to maximize the ability to, monetize those customers that really have a key dependency on their particular software.

And then the transition that we're seeing now is going from the sort of subscription, those differentiated plans and tiers, to something that still builds off of that, but then now includes usage-based or value-based components.

Because customers are looking to gain as much demonstrable value from the software that they're using as possible.

Now an interesting aspect for usage-based pricing here is that although end customers want that value-based model, They also want predictable expense against their, use of the software. So typically people do annual budget, and they need to know that there's some predictability about what they'll have to spend on the software going forward in the next year and the year following that. So this usage-based value-based approach is somewhat in conflict without predictability of expense. So often people adopt hybrid model where there's a base subscription amount and that that is predictable and so forth. But there's a component that is usage-based layered on top of that that gives kind of more of that value-based usage over time aspect.

From a vendor standpoint, also they want to get paid for the fair use of their applications, but they also want to encourage greater adoption of their software within the organization. So they like usage-based models because that helps, do account penetration and expand their footprint within that given organization.

That being said, they also want predictability of income. Right? They want predictability of revenue coming back from their customers.

So this is a dynamic that is still working out. People love the flexibility of usage-based models, but they also want predictability on both the expense side for the customer and on the revenue side for the vendor. So this is a way to think about your particular journey in terms of monetizing your software, and we'd help love to help you get from one point to the next.