Click to learn more about author Victor DeMarines.
Revenue leakage is detrimental to any business, even in the best of times. During challenging market conditions, as seen today when companies of all types are adjusting to the impact of the COVID-19 pandemic, shoring up that outflow is particularly important.
Within the commercial software industry, piracy and overuse are two common problems that lead to revenue leakage. To measure, identify, and remediate the associated revenue loss, a holistic software license compliance program is required. This approach — which layers software compliance intelligence and analytics with traditional methods of countering piracy — captures accurate infringement information, makes it actionable, and maximizes revenue recovery.
The Scope and Causes of Revenue Leakage
The challenge of quantifying how much revenue is lost to piracy and overuse is significant and worth addressing. Ongoing research finds that many software suppliers are hindered by not having much data on either piracy or overuse by existing customers. Among those who are able to measure revenue loss, some are losing significant amounts (greater than 30 percent) of their revenue to piracy or overuse.
How this information is gathered varies from supplier to supplier. While some have audit programs, anecdotal evidence is the most prevalent form of tracking. Common causes of revenue leakage include intentional piracy, unintentional piracy (through the purchase of unauthorized software), unauthorized credential sharing in user-based models, unintentional overuse from the cloning of virtual machines, and unintentional overuse in user or usage-based monetization models. Many software suppliers aren’t sure of the extent of revenue leakage stemming from these causes.
The Role of Software Usage Data
Revenue recovery requires the right data and strong analysis tools. Software usage data is the glue that holds an effective program together. Usage data — valuable in all software deployment and monetization models — sheds light on variables including whether (or not) software’s being used, increases or decreases in usage, and the product version and features that are being used.
Software usage analytics taps into this usage data to help software suppliers optimize and expand product functionality. Robust analytics can help build better products by understanding a user base and engagement, identifying popular features, visualizing user journeys, and more. Software usage analytics can also inform software product roadmaps, sales, and marketing decisions.
Looking at the use case of software license compliance, usage analytics can also be relied on to track and identify unlicensed usage of the software. Usage analytics for license compliance uses a data-driven approach to identify and detect infringing users, then provides the intelligence to convert them into paying customers. This protects intellectual property, strengthens long-term customer relationships that yield recurring revenue, and helps vendors solve the costly business problem of revenue leakage.
How to Layer Software Usage Analytics to Enhance License Compliance Goals
Software usage analytics provides compliance intelligence that builds on and works with four existing core strategies that, on their own, have significant limitations.
1. Software Licensing Tools and Strategies: Part of a foundational strategy for most packaged software vendors, software licensing tools help keep customers honest and can help vendors track entitlements. But licensing software varies. It may be homegrown or purchased from a third-party. It may provide few tools (possibly none) to identify overuse or track unlicensed usage. The data it captures may be cumbersome or inefficient. If piracy is taking place by disabling or bypassing licensing altogether, no information about it is gathered. Adding a compliance intelligence solution provides complete visibility, even when licensing is disabled. It delivers the number of pirating users on each device and accurate IDs of the pirate’s true location. Compliance intelligence also enriches data, facilitating full analysis of the scope of and trends related to piracy, infringement, and overuse.
2. Software Protection Strategies: Standard software protection techniques often only delay piracy briefly, without actually preventing it. Compliance intelligence notifies the software supplier when a new version of point release is cracked; it also provides missing information that identifies users. Granular information about the efficacy of a software protection method can be used to make well-informed decisions about which protections are appropriate for each product and market, in turn optimizing the tradeoffs between cost and advanced protection.
3. Internal Compliance Methods and Auditing: “Internal compliance” is often synonymous with “auditing.” Audits are useful in any comprehensive license compliance strategy, but they’re often conducted less than optimally. Customers may be targeted, even without proof of infringement; audits might be triggered through anecdotal evidence of concerns about overuse (perhaps from a salesperson concerned about how many licenses a fast-growing company has or should have) or from a customer support rep who fields a call from a user not in the customer database. Compliance intelligence relies on detailed, reliable, specific forensic evidence of overuse and piracy — not on suspicions. By enriching captured data, software vendors can identify the full scope of a company’s infringement — across divisions and locations worldwide — in real-time. Data-driven auditing facilitates audits that are consistent with your contract rights, that don’t alert the infringer, and that help optimize any remaining physical audits that may be necessary.
4. Legal Action and Response: For the majority of companies, the benefits of pursuing legal action against piracy (sites, channels) are shadowed by the cost and complexity of the process. The pirate community is resilient and will find new methods of delivering pirated software through illegitimate channels. Compliance intelligence quickly reveals information about piracy distribution channels. This allows a software supplier to view pirate sites as a viable distribution channel that can be managed for profit, convert pirates into customers (whether they knew they were pirating or not), encourage conversion through in-app messaging campaigns and by gradually degrading software features, and to facilitate takedowns, in certain instances.
Layer, Don’t Replace
Existing strategies are important. Incorporating software compliance analytics is a way to tie them all together, not a cause for eliminating any of the processes already in place. Layering these approaches can capture full, accurate infringement information to minimize piracy and revenue leakage, while ensuring all users are paying customers — without complicating development, management, or the customer experience.