Prepaid software: More than a token solution to licensing woes
- 27 August, 2008 10:22
I'm writing about Aspen Technology today not because you are likely to ever need its software (unless you own an oil refinery) but because the way the company allows its customers to purchase its smorgasbord of software applications is unique -- so much so that you may want to consider putting a little pressure on your vendors to consider the same.
As opposed to the traditional model, which includes a perpetual license, and the newer SaaS (software as a service) model, which is pay-as-you-go, Aspen Technology offers a third way to license software, one more akin to buying a prepaid cell phone card.
I don't want to expend too much ink talking about the company's software per se, but to frame how it works, you need to know a little about what Aspen Technology does.
The product suits the business model
Aspen Technology offers three suites of software, the first of which, its engineering software, is used by the likes of BP and Chevron to help design and build refineries. As Blair Wheeler, senior vice president at Aspen Technology, puts it, an oil refinery is really a giant chemical lab with miles of piping, heat exchangers, boilers, and cooling towers, all used to process crude.
The second suite, for plant manufacturing, monitors all the processes used to produce the finished product. The third set of applications is a supply-chain suite for optimizing the movement of materials into and out of the system.
Perhaps the idea for its business model was born of the fact that you need all of the software some of the time and some of the software all of the time, but you never need all of the software all of the time. (My apologies to Abe Lincoln.)
Prepaid token model
In response to its unique scenario, Aspen Technology sells tokens that the buyer uses to purchase any of its software in five- to six-year chunks. Once you have purchased tokens, you can use them to license any of the company's products. So if the engineering suite requires 50 tokens per user, and the plant manufacturing suite is worth 20 tokens per user, and the supply-chain software is worth, say, 10 tokens, you can divide that up in any combination you choose.
Let's say you start by purchasing 1,000 tokens, enough to have all three suites used by N number of people. You quickly discover that you need five fewer people on the engineering package but 20 more people on the supply-chain suite. Well, just shuffle your tokens around. Five fewer people on engineering frees up 250 tokens, which you can now put toward 20 more people on the supply-chain solution with 5 tokens left over.
Benefits of tokens
While simple in concept, say Bill Polk and Allison Smith, research directors at AMR Research, the model allows for fairly complex purchasing scenarios. In addition, companies have the flexibility to expense or capitalize the software acquisition.
Also very appealing, the token model has less waste, say Smith and Polk.
Of course, it is better suited to some industries than others. For example, the token-based model is ideal for applications used on the design side as part of a project rather than, say, an AutoCAD solution that is used all day, every day.
The solution also helps a company track the usage of its applications better, adds Tom Fiske, senior analyst of automation & supply chain at ARC Advisory Group. Actually, Aspen Technology by necessity does that for you.
Like SaaS, there are advantages for the vendor as well, in terms of leveraging its installed based, Fiske notes. Any company with a large portfolio of products may have difficulty getting users to try other items. The token model allows companies to try something for far less investment than the traditional model.
Wheeler says Aspen Technology's customer base likes the token model, and he is proud to tell me that from Aspen Technology's perspective, they are putting their money where their mouth is. Aspen could probably sell more using the traditional model, but by not ripping off the customer, there's a stronger bond between seller and buyer.
From the complaints I hear on almost a daily basis from IT buyers of enterprise software, it sounds like an advantage that, although intangible, will probably produce the most benefit of all.