Dan Griffith

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Why We Need To Move To Utility Pricing

• Dan Griffith
• Freescale Semiconductor
• EDA Software Asset Manager
• dan.griffith_at_freescale.com

Logo Area for Speaker
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The Movement From Perpetual Licensing

• In 1998, Motorola and the EDA community began to
  move from Perpetual site locked licenses to
  Time-Based globally floating licenses

This was a giant step from the both the software
vendors and their customers. It was a true
win-win move forward
WARNING This presentation is from the viewpoint
of the Electronic Design Automation (EDA)
industry.
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Need For A New Model

• Today, six years later, Time-Based licensing or
  Subscription licensing models are no longer
  meeting the business requirements of either the
  software vendors nor their customers.
• Lets look at why

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Time-Based vs. Perpetual Licensing

• The main differences between Time-Based Licensing
  (TBL) and Perpetual licensing
• TBLs typically are allowed to float anywhere
  within the customers internal network vs.
  restricted to a site or system.
• TBLs expired at the end of the contract making
  it easier to move to new technology vs. 99 year
  keys (perpetual)
• TBLs annual access fee included maintenance vs.
  an additional annual maintenance fee.
• TBL software pools are remixable vs. fixed
• Time Based Licensing Brought Many Good Things To
  The Table

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Addition Advantages of Time-Based Licensing

• Subscription and Time-based license models
  provided the following
• Company wide global access to the same tool set.
• Single point of sales and business contact within
  companies for the vendors.
• Usage efficiencies due to global license sharing.
• Opportunity for wider adoption product offerings
  for vendors.
• Easier adoption of new technology
• These too, are all good things!

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Short Comings of Time-Based Licensing

• There are two major problems with current
  Time-Based and Subscription based license models
• 1 Despite our best efforts, on any given day, the
  customer has either to many or to few licenses
  of any particular tool.
• 2 On the days when the customer has to few
  licenses, engineering activity is limited while
  the software vendors are locked out of a revenue
  opportunity.
• A Lose Lose Scenario

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Why We Need Utility Pricing - Peak Demand
Freescale captures and records peak tool usage
every 10 minutes. The graph below shows that
engineers were denied licenses for three short
periods in one week. While this impacts
engineering, no mechanism exists to meet this
limited demand and provide the needed capacity.
With excess licenses available 98 of the
available hours, management is unlikely to
approve additional purchases. Lose - Lose
8/23/2004 8/29/2004 Feature SimSuite Pool
Freescale
Available Licenses 103
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Why We Need Utility Pricing Requirements
Analysis
Freescale uses 3rd party and internally developed
tools to analyze requirements
CSAMs 10 Minute Peak Report
CSAMs Six Peaks Report
LinkRights Tracker
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Why We Need Utility Pricing To Many To Few
Still, after hours of detailed usage analysis,
at any give moment, we still have
either too few or too many licenses
8/23/2004 8/29/2004 Feature SimSuite Pool
Freescale
To Many Licenses means low utilization metrics
making it difficult to justify additional
Purchases.
To Few Licenses impact engineering
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Why We Must Move To Utility Pricing

• - Vendors need the opportunity to increase
  revenue.
• Customers need tool availability to match
  fluctuating
• engineering demands.
• The solution can only lie in a new pricing model.
• That model appears to be some form of Utility
  Pricing.

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Utility Pricing
Utility Pricing refers to any pricing model which
has a variable component. The electric company
is an example of Pure Utility Pricing. Usage is
metered and you pay only for what you use. Cell
phone plans are a variation of a pure utility
model with a fixed free for a fix number of
minutes plus a variable fee for roaming and
additional minutes. Neither software vendors nor
their customers seem willing to take the leap to
Pure Utility pricing. The risks, rather real or
imaginary, appear to be too great for both. A
variation of pure utility pricing may need to
come first.
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Variations in Utility Pricing Token Based
Token Based The customer purchases a quantity of
software tokens. Each token has a dollar and
time value. Example Company Industrial Semi
purchases 1,000 tokens. 24 hours of TestSuite
(List Price 25K) 1 token 24 hours of VeriSuite
(List Price 50K) 2 tokens 24 hours of SimSuite
(List Price 150K) 6 tokens 24 hours of
RouterSuite (List Price 650K) 26 tokens The
license manager keeps track of the number of
tokens utilized. When the 1,000 tokens are
exhausted, Industrial Semi must purchase
more. Plus Provides great flexibility in usage
of available products. Provides Vendor with
additional revenue opportunity. Minus Complex
accounting when a large number of products are
involved. Once tokens are exhausted, customer
must purchase additional tokens or lose access to
the technology.
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Variation in Utility Pricing User Based

• Flexible User
• Vendor defines 1 to 3 product categories, provide
  unlimited access to
• all but the most expensive tools, and charges by
  the user not the usage.
• Customer commits to a minimum number of users in
  each category.
• Example
• Software vendor Acme Router has 80 product
  provides two software categories.
• General Includes unlimited access to all tools
  with a list price of 200K or less
• - Committed users are 5K each per year.
  Additional users are 6K each per yr.
• High End Adds access to tools costing greater
  than 200K ea with some limits. Acme Router has
  6 tools with a list between 200K - 800K
• - Committed user are 14K each per year.
  Additional users are 16K each yr.
• - No single user can access more than 5 lics
  concurrently of a tool costing more than 200K.
• Plus
• Provides great flexibility in usage of available
  products.
• Provides Vendor with additional revenue
  opportunity as company expands.
• Budgetable for customer and committed minimum
  forecastable for vendor.
• User count, accounting method fairly straight
  forward.
• Minus
• Customer is committed to a minimum number of
  users.
• Vendors revenue growth directly tied to
  customers growth.

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Variation in Utility Pricing Usage Based
Pure Utility Model A pure utility model is enable
by FLEXBill. Vendor provides unlimited licenses.
The customers encrypted usage report logs are
sent to Macrovision for analysis. A usage
statement and invoice is prepared based on actual
usage per the contract terms between the customer
and software vendor. Plus Provides unlimited
access to tools on demand. Provides vendors
with opportunity for increased revenue. Minus
Difficult for customer to budget and control
costs. Difficult for vendor to project
revenue. Additional costs involved with data
analysis. Usage log translation is complex.
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Variation in Utility Pricing Usage Based
Pure Utility Freescale analyzed the potential
effect on software costs if a group of users were
allowed access to an unlimited pool of very
expensive software licenses. Without controls,
the potential costs quickly rose above what was
affordable.
Cost controls put in place
Unaffordable Usage Level
Affordable Usage Level
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Model Comparison
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Model Comparison
Utility Models are the only models that provide
for peak demand licenses for the customer and an
opportunity for automatic revenue growth for the
vendor. Here lies the future.
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In Conclusion
Each customer must work with their vendors to
select the best pricing model for their
business. All the models, Perpetual,
Time-Based, User Based, Token Based, and Usage
Based will continue to be viable in a given
business space. Customers and Vendors must work
together to develop new pricing models, beyond
the five discussed here, which more closely meet
all of our business needs. Utility Pricing
offers the best hope for accomplishing that
goal.
dan.griffith_at_freesca
le.com