Usage Insights: The 3 Keys to Software Monetization Innovation

Matthew Dunkley

October 25, 2019

INNOVATION – That’s a watchword for software suppliers and IoT companies. In the process of developing meaningful products, one particular aspect must be evaluated: how software is used. Some companies have effective programs for measuring and responding to this, while others struggle with establishing efficient plans. As consumption- and usage-based models grow, usage data plays an increasingly important role.

Whether software is in the Cloud, on-prem, or embedded, gathering usage data about it is crucial. Without it, product teams don’t have the data required for strategic planning or to ensure that price aligns with value. The October 2019 Flexera Monetization Monitor: Usage Management and Insights report shows how companies across varied industries (pure-play software, manufacturing and industrial automation, computer hardware and peripherals, medical devices and services, and teleco and communications) understand and act upon usage data. The results yield actionable insights for software companies and device manufacturers.

As software suppliers’ interest in usage-based monetization models grows, so will the need for accurate usage data. Consider these three keys for unlocking the full value of your software and devices.

Understand What Usage Is

Usage insight is more than knowing if software is being used or not. It includes how much of a certain metric is being used, whether utilization is increasing or decreasing, versions and features in use, and trends.

Interest in usage data is clear, but companies have varied access to an interpretation of software usage data. Only 51% can see if customers are using software at all; 45% can see which product version a customer is on; 43% can see which features are being used, and 42% can see if usage is increasing or decreasing. A full 15% are operating without any insights, indicating they can’t see any usage or utilization metrics.

Embrace Effective Data Collection

In his IDC “Usage Intelligence” Market Presentation, Mark Thomason, Research Director, Digital Business Models and Monetization, highlighted that, “Accurately tracking usage is critical in consumption-based business models such as utilities (power, water), telecommunications (voice, text, data), and infrastructure as a service (IaaS — compute, data storage), but outside of these situations, most usage data is underutilized.” Even if a company’s model isn’t currently based on consumption, those who don’t measure and evaluate usage will be left behind while others innovate. (As reported in Flexera’s previous report, Monetization Monitor: Monetization Models and Pricing, more companies are using hybrid monetization and deployment models.)

Automation of usage data collection provides room for operational improvement, regardless of monetization model. Automation also builds credibility and reduces errors. At many companies (31% in this study), usage data can be tracked, but in a way that requires manual processes or engineering work. These manual processes create inefficiencies, are error-prone, and can take up value resources that could be invested elsewhere.

Benefits of collecting usage data is that it helps align pricing and build pricing confidence. Among companies that use manual process or are still in the planning stages of collecting usage data, only 41% feel that their pricing is aligned with value. Overall, this number goes up to 53%, but grows even more, to 63%, among companies that are already very good at collecting usage data. Improving these rates is an important step to aligning price with customer value; 33% of all respondents claim that insufficient insights into data usage is the biggest hurdle here.

Additionally, usage data can provide insights into unintentional overuse, unexpected usage patterns, and more. Unintentional overuse in user or usage-based monetization models was reported by 40% of all respondents. Beyond preventing such leakage, usage data can help product managers monitor patterns of usage to improve customer experience, capture abnormalities that may indicate a hack or usage above contracted limits, and improve compliance by monitoring usage limits and licensing.

Recognize SaaS Leaders’ Best Practices

Companies of all types leverage usage-based monetization models to some degree, highlighting the importance of usage insight for all deployment models. SaaS-based companies lead the way in collecting usage data, while on-premises vendors remain exposed when compared to the competition. Among SaaS companies, 94% either already collect, or plan to collect, some sort of usage data in the next 24 months; only 73% of on-premises companies are doing the same.

Among companies that are mostly providing SaaS Solutions (for more than 71% of their software lines), 59% deploy usage-based models for more than half of their software; that number drops to 45% for companies that mostly provide embedded software and 29% for those that mostly provide on-premises software. Furthermore, 70% of SaaS-based companies expect to increase their use of usage-based monetization models in the next year and a half, while that number is only 43% for companies overall.

Usage insights provide great value to all suppliers, including those running on-premises and perpetual models. The only way to successfully run a usage-based monetization model – today or in the future – is to track and understand current usage patterns. The results: better products, better value, and better customer relationships.