Only You Can Change Your Software Pricing Experience

Amy Konary

Research Vice President, Software Licensing



In IDC's 2015 CXIT Survey, 809 respondents were asked to rate the major tasks, reasons, or interactions through which customers engage with vendors. The number one interaction, higher than support questions, contact center, or even sales-- is pricing. In the software industry, pricing is equal parts science and art, and software customers play an essential role in shaping their own experiences.

The typical software customer experience begins with a license negotiation that is about as fun as buying a used car. At least in the case of the car, the consumer has information that they can use to figure out if they are getting a good deal. Very few enterprise software providers that publish a price list, and customers end up believing that they pay what they can negotiate.  Once the software is implemented, the customer must manage the software licenses and stay in compliance with the agreement.  The average customer will have hundreds, if not thousands, of software contracts to manage. The terms are almost always different and complex to understand.

This analyst is often asked to assess which software producers offer customers a good software pricing experience, and which ones do not.  It isn't as simple as putting companies in a “good” or “bad” column. Companies with a large and broad software portfolio can be more challenging to buy from simply because they have a lot of products to offer, many with licensing terms that differ due to merger/acquisitions, market conditions, and unique requirements across a vast set of functionality. In addition, some companies offer more flexibility in how they price for customers, such as metrics that measure value for a specific user role, or a user in a vertical industry. Some software producers create license types at the request of their customers. While this kind of flexibility is almost always in response to customer needs, it leads to complexity that negatively impacts customer satisfaction. From here, the road back to simplicity can be a long one.  

Software audits are also a part of the customer's software licensing experience. While software providers believe that education is the best way to help customers navigate complexity and manage their software licenses effectively, the reality is that audits can and do happen. All of the largest software companies have the contractual ability to audit, most do, and the number of companies outside of the top 10 that regularly audit is increasing.

In almost every case where an audit is initiated, compliance issues are found. Software vendors will not disrupt a client's business unless they are fairly certain that there is a problem, and therefore they look for red flags. These include merger and acquisition activity, contract expiration dates, virtualization initiatives, and other major impending events. Dynamic environments — such as those where servers are frequently reimaged — can often be host to compliance issues.

Another factor that vendors consider is the degree to which there are controls in place to prevent unauthorized use. Many ISVs do not want to "lock down" their products because they don't want to inconvenience or send the wrong message to their honest customers. ISVs may then focus their audits on products that have very little license enforcement (other than contractual restrictions) where it is easier for customers to run into compliance issues.

Software negotiations and license audits are a part of the enterprise software landscape. While these events may never be delightful for customers and software producers alike, there is much that can be done to make the software pricing experience a more favorable one.  Software customers play a role in shaping their own experiences, and will need to make compromises in order for these to improve. For example, they should resist the urge to ask for special terms in every negotiation. In many cases where customers find software pricing too complex, the very terms that confound them were created for them in response to a request for custom flexibility.

In order for things to improve for customers, software producers need to make some changes. These changes won't happen unless customers push their vendors to change processes, roles, and even company cultures in order to provide a better pricing experience. This is a list of a few  of the many ways that customers should encourage software producers to improve.

  • Transparency.  The first step in the pricing journey should not be "contact a sales rep".  Every software producer should have a publicly available pricing page.  We all know that these deals are complicated and often involve custom elements. What is the harm in giving customers a starting point to help anchor their expectations?
  • Community. Customers should be encouraged to share their experiences with one another, whether at physical events or online forum. The software pricing experience should not be a taboo subject (this would be revolutionary… customers are usually contractually required not to discuss purchase information).
  • License Management. The more flexible the software licensing arrangement, the more challenging that manual management will be and the more likely that compliance situations will occur. IDC has published a maturity model to provide guidance on the processes and technology that should be applied to the management of software licenses.
  • Audits. Most of the largest software producers initiate audits, and the majority have an associated annual revenue target. Software producers say that they would like to reduce the number of audits that they do and focus instead on empowering customers, but until the target goes away it is easy to come to the conclusion that software vendors have little incentive to fix complexity. Compliance groups within software producers should be measured based on their ability to fix the problems that lead to compliance situations, not awarded when those situations result in revenue.
  • Governance.  Software producers are always reviewing the relevance and effectiveness of their pricing strategies.  In order to discourage sales or product management from making changes that create complexity but provide little benefit to the customer base, there should be governance, rules and policies around what can be added to the price list and how. For example, in order for an item to exist as a standalone item on the price list, it should meet certain revenue criteria.
  • Internal communication. Software sales reps hear a lot from customers on their pricing experiences, but this feedback doesn't always lead to change. For example, SaaS companies are moving customers to terms that require annual contracts be paid 100% up front. This is being baked into sales rep's comp plans. Some customers don't mind this, but for many, such as franchises or small businesses, this can be a major hardship. Annual billing up front has become a major contributor to negative customer experiences in a purchase process that is otherwise generally OK.  Sales reps should know this, but sales management and corporate does not seem to realize how big an issue this can be. There should be internal mechanisms to manage customer experiences in the same way that these are managed in other parts of the organization, such as customer support.
  • “Customer success” needs to include pricing. Many software providers have customer success initiatives. These initiatives need to focus on the entire ecosystem of customer touch points and include the pricing experience.  Customer experience and success should be every employee’s job. For example, at Citrix every employee rates themselves in terms of how they improved the customer experience as part of their annual assessment.

These are just a few of the many ways that software producers could work to improve their customer's overall experiences by starting with pricing. The good news is that software producers are aware of the issues, and are working to fix them. However, the challenges are pervasive, and changes will be observed over the course of months or even years-- not overnight.

Presented By: IDC

Jul 17, 2015