Utility and future PLM licensing models

Razorleaf article More PLM Licensing models made me think about business models and licensing transformation that happening these days in engineering and manufacturing industry. I guess, we knew changes are coming… Back in 2012 I shared some of my thoughts about PLM Cloud and Software Licensing Transformation. In a bit different perspective I’ve been discussed future PLM business models at PI Innovation Congress 2012 in Munich.

One of the key aspects of licensing transformation is related to upfront cost customers are requested to pay for PLM systems. I can see it as a future battle for PLM upfront cost. You may hear an opinion that customers are winning and chances are service or subscription model can be a dominant licensing model in the future. I’m not sure about winners and losers. However, my thinking is more about revenue models comparison before discussing licensing options. The biggest question is how customers want to consume PLM software and pay for the usage. I can see the majority of PLM sales as value based sale. Slow ROI and low value proposition is creating some challenges for existing dominant PLM businesses. Razorleaf article mentioned a combination of floating licensing and subscription as a traditional licensing model. I can only add that before vendors sold named licensing, which was even more restrictive.

Cloud and SaaS software pushed industry towards subscription based licensing. It was a natural step that can change fundamentally PLM sales model. However, I’m not sure the switch was done completely. It certainly moves PLM software expenses towards operational. However, in case subscriptions are prepaid for 1-2 years, it is not eliminating upfront cost of PLM. But it clearly a change from perpetual licensing and support models.

So, what future can hold for PLM software vendors and manufacturing companies? I guess, user adoption is a biggest challenge for vendors to show full potential of PLM in an organization. The trend towards lowering upfront cost will continue. Subscription trend will continue. The challenge, however, will be to manage a diversity of subscriptions. I suggest to look back in the history on how TV, telecom and internet business was developed for the last 10-15 years. Customer preference  simple subscriptions and bundles of TV, phone and internet services. The same trend we can see for computers and operational systems where software sold on a premise of buying computer or other device.

What is conclusion? I guess a good chance PLM licensing will be shifting towards utility pay. The fundamental assumption – if a service used by a manufacturing company, it must be available for majority engineering and manufacturing personnel. To calculate usage can be a bit challenging, but future shift towards transparency can make it possible. So, do you think we are going to see “PLM licensing meter” in the future? A chances, vendors will charge customers for how much PLM they consume. It will make both customer and vendors more transparent and responsive. Just my thoughts…

Best, Oleg