Piracy is probably one of the biggest problems software companies encounter. India, like most other Asian countries, does not have stringent laws to ensure the use of legal software on desktops. So rather than fight a losing battle, software companies have decided to re-invent licensing policies. Punita Jasrotia elaborates on the new game plan

From the earlier days of a vendor-dominated policy, software licensing is now evolving into customer-centric policies. Not only are vendors devising different innovative policies to attract and retain clients, but end-users are also increasing their awareness about different licensing policies. All this is leading to the emergence of long-term contracts and a reduction in licensing fees with a lot of value-additions thrown in.

Licensing policies are driven by the fundamental need of the developer to make buying and use/deployment of software products easy, and at the same time to prevent revenue losses on account of piracy. Basically, a software license grants an organisation or individual the legal right to use the software. However, considering the dynamism of technology, the software licensing policy is slowly becoming an integral part of this buy-out, with many customers treating it as a means of investment protection and ensuring support as the policy takes into account factors
like upgrades/updates, support (AMC), software piracy control, and the manner in which the software can be used.

Sandeep Mehrotra says the Indian market tendency towards discounts is not a good sign if the software industry has to progress

Increasing need for licensing
Piracy is one of the major issues forcing vendors to advocate licensing aggressively. Even though there has been a reduction in piracy in India, with the rate this year coming down to 74 percent from 89 percent, the need for improvement is still there. (Adobe has an approximate pirated ‘market share’ of 90 percent in India). Says Shekhar Avasthy, assistant manager, software and services research, IDC, “A software license provides the owner the right to use it and also defines terms and conditions for the contract. Not only can a policy limit legal liability against the user, but he can also get additional support that pirated software cannot provide.”

In spite of knowing the problems that the usage of pirated software can bring, most companies tend to overlook it. Explaining the disadvantages of piracy, Ashish Aggarwal, managing director of Trifin Technologies (the national distributor for Corel software) says, “Since pirated software is generally incomplete and various key components and files are missing, it results in lack of features and system instability as most of the software contains errors, viruses and bugs. This can sometimes cause loss of data for the user, as the work done might just not save properly. There are millions of dollars being spent by software companies on R&D, and in case they do not get their returns due to piracy, they will not be able to develop better software; this will lead to stagnation of technological advancement, which will ultimately curb the productivity of the user.”

Piracy is generally linked with a product that may either be in great demand or requires continuous upgrades.

According to Sanjay Agarwala, director of Eastern Software Systems (ESS), “Minimisation of piracy is an issue largely for the individual productivity-based applications, like MS Office. Corporates going in for large applications such as ERP are not expected to pirate software. If it happens, it is not so bad as ultimately the client shall come to the IPR owner for support and enhancements. Piracy is basically an indication of the gap between the perceived benefit and affordability.”

All this has led to a change in the market perception about the usage of tools to reduce or stop piracy as more and more software companies that have been hit have come to realise that Serial number, Product ID number or Password-based licensing mechanisms have been completely ineffective. Says Deepak Prasad, director
at Rainbow Technologies, “Password-based license enforcement is no longer enough. The trend is moving to more robust security that is easily deployable and depends on something more than usernames and passwords, which can be compromised without much difficulty.”

According to Deepak Prasad password-based license enforcement is no longer enough and users want a more robust security system

While some companies have opted for an additional tool, others have decided to do away with their tools to reduce piracy and focus more on spreading awareness. Taking the lead are companies like Microsoft, Oracle, Novell and Corel, which are aggressively campaigning against piracy. Industry experts feel that what is needed is proper education of customers by vendors, awareness programmes by independent bodies like Nasscom, stricter law enforcement, and establishment of internal policies and audits, specially by corporate and government bodies.

Lower prices and longer relationships
There are two important trends in this space. The first is to reduce the license price for client acquisition, and the second (once a client is secured) is to implement licensing strongly, get maximum value for add-ons, and ensure a long relationship. However, in India it is just the beginning of value-added services as customers have only recently started looking beyond the basic box.

For most users, the fear is about fluctuating AMC fees and a change in licensing terms as any change in the licensing policy can lead to unplanned expenditure on upgrading or updating the products even when the requirement might not be there. But just to stay updated and protect their investments many organisations have to go for it.

Realising this, many companies are slowly moving towards a long-term association and signing contracts which are for more than a couple of years as this saves them the hassle of choosing a vendor time and again. This spells good news for software vendors as a longer policy means higher revenues (taking care of their one-time development cost); they also avoid frequent negotiations. Taking a lead, Microsoft has already come out with an enterprise agreement of 10 years, while Computer Associates has changed its policy to five years.

However, Avasthy is of the opinion that it can turn out to be quite an expensive proposition for those companies who do pay. “Unless and until you have the need, why should you be paying? Considering the way technology changes, your need ten years down the line is something difficult to assess. Also, with the stock prices of most companies falling, paying at today’s value does not look so appealing.”

This has also led to the adoption of products in a modular form, whereby the user is free to opt for whichever a module he wants. “Vendors need to realise that if they have to succeed, they need to give flexibility to the customer,” says Ashit Panjwani, manager, alliance and marketing, Onward Novell Software. This has also led a reduction in licensing fees.

Another factor influencing the price reduction is the immense opportunity that lies in the SME segment, which hasbecome a key priority for most software vendors. According to Agarwala, SMEs will drive licensing prices downwards very strongly, while Aggarwal of Trifin believes much opportunity lies in the education segment, which is opening up to computerisation. Says Aggarwal, “Software vendors should subsidise licensing in this field to promote software usage at the entry level so that the same software can be used in the professional scenario once students come out of schools and colleges.” To utilise this opportunity, many vendors are now reducing their licensing fees and giving heavy discounts to retain customers.

Shekhar Avasthy says a software license limits legal liability against the user, and also allows for him/her to get additional support that pirated software cannot provide

In all this, one major area of concern is the user’s attitude towards licensing policies. Even though the user has become more aware, he still views customer service as part of the parcel, which dissuades many vendors. “The user needs to understand that they need to pay the IPR. As we are in the business of solving the business problems of the user, they also need to co-operate,” says Panjwani. Sandeep Mehrotra, the channel account manager for Adobe, points out a stark difference between the Indian and global licensing market. “While globally industries are feeling the need for a global access management system so that they can keep track of what their assets are and how well they manage them, the emphasis in the Indian market is more on discounts. This is not a good sign if the industry has to progress.”

Vendor strategies
Licenses can be broadly classified in two categories—perpetual and term. While the perpetual license has no limitation on the period of usage as the user owns the license, the term license has a limited period of validity. Experts say that it is the perpetual license which is slowly taking a lead with more companies wanting to sign a long-term contract.

Licenses could be per-seat (per-desktop) or per-server or a combination of both. If a desktop needs to access multiple servers, a per-seat license would be more economical than a per- server license. Vendors like Novell are moving from the server-centric to a user-centric model as it gives customers more flexibility in deploying applications across multiple servers. However, the policies may differ from being trial-based to being user-based or being processor-based. Ultimately, the choice of licensing policy depends on the business model and requirements of an organisation, along with its technological infrastructure.

ASP is another very attractive model emerging for organisations intending to outsource every activity other than their core business. The ASP model allows organisations to try out a computing model without having to invest in hardware, software and other equipment. Oracle and Legato Systems are already using the ASP model.