Key Driver of Software Monetization: Everything is going to be software-related in the future

software monetization

Written by Joe Poh – Doctoral candidate at UOW Malaysia KDU
Published on 9 November 2020

The financial impact of technology and software-related products is immense. To quote Jeff Immelt (of GE): “The notion that there is huge difference between the industrial world and the software world is no longer valid…. those days are over. In today’s world, everything is software”. He also expressed that “every company has to be a software company in the future” in an interview with Rose in 2015. The main driving force indeed is natural evolvement of all industries blending with software. If everything is going to be all software-related in the future, it is not an option but a necessity to force businesses to have the mindset to profit from their intellectual property (IP) in software.

To further elaborate the use case, below are five (5) examples where software has become a core IP of their businesses. All these examples are actual use cases that MI-MSC has invested in between 2019 and 2020 as a minority shareholder. We consider these companies as high potential start-ups. Four (4) are from Australia and one (1) is in Malaysia.

  1. Buildxact.com.au – The number 1 software for builders. It is an all-in-one job estimation and management software for builders. Blending traditional builder industry with the use of cloud-based software.
  2. Latitude28produce.com – An innovative start-up using blockchain technology to sell Australian beef directly to consumers in China from Australia, via a mobile application that uses blockchain technology. Consumers can ensure fair price and genuine product from Australia.
  3. Nu Fortune (Associate Company of Clean Earth Tech) – A gold mining start up from Western Australia that will use innovative technology to process and mine gold without pollution to the Earth. It also uses blockchain methodology to allow investors to invest gold direct from its mine. Via a blockchain mobile application, investors can trace from stage to stage its gold from the mine to also trade the gold among investors with real time gold price.
  4. Amlab.com.au – A start-up that uses AI to specialize in autonomous bulk ship loading. Providing a fast and lowered cost operation for port with automated robotics loading crane. The traditional human-based loading is enhanced with computer AI-based cranes.
  5. Landlord123.app – An application developed to allow landlords and agencies to manage rental property. From normal property inspection to fixing damages and property-related problems. An intelligent collection algorithm is built into the system to assist rental collection, which is one if the important problems that needs to be solved.

All the above companies did not originate as a software vendor. However, the use of technology has become a potential disruptive factor in their respective industries. It is not just confined to software alone, but also researches to proposed monetization in a networking environment. Software has become blended with IP within their businesses. Be it the software is developed by their own engineering team, or purchased as a ready product from a vendor, software monetization will be a crucial kick-off point for them as business revenue. It is a big thing!

“By 2021, over 50% of software revenue will come from the subscription/consumption business model, which includes on-premise software sold as subscription and hardware/software as a service”.

– IDC FutureScape report

As software-oriented business models are growing rapidly, so does the need for businesses to maximize their revenues from their IP. According to the prediction by IDC, more than 50% of software revenue will come from the subscription or consumption model. There is a need for businesses to tap and open up new revenue streams from strategy in license pricing and packaging. Compared to more than a decade ago, many license pricing and packaging models are easily available in the market. Figure 8.0 below indicates the overview of models available and their use case.

Model / LicenseDescription
PackageSingle license purchased for a single user or machine. Traditionally sold as out-of-the-box software.
PerpetualThe sales of license to use is one-time, with options with a fixed fee for additional upgrade and support, but varies from different vendors.
FeatureSales of license is based on feature or module, e.g. a HR software may consist of payroll but options for another module are chargeable to activate credit scoring of staff performance.
ProcessorBased on the number of processors to determine the license needed to purchase for a server.
Network / ConcurrentLicense based on an agreed number of users that can be used at the same time.
SubscriptionLicense purchased based on time or period between months or years. Usually 6 to 12 months.
Utility / Pay per useUsage base on transaction, quantity of access, usage within a time.
KPIBased on an agreed Key Performance Index followed with billings.
Figure 8.0 – Overview of Software Monetization’s Business Models (Source: Ferrante, 2006)

A popular use case will be Microsoft Office Professional that was sold a decade ago at USD 499 per user in a perpetual model. As of today, in 2020, Microsoft Office is named Office 365 Business premium which can be used in any devices with cloud storage at the price of subscription per year with USD 20 per month per user. A yearly commitment is thus estimated at USD 240 per year. Comparing to the nearest similar package, a user will need to pay higher based on usage of more than 2 years. The relationship becomes recurring that reduce sales cost but maximizing business revenue. Microsoft has opened up more revenue stream by further packaging Microsoft Office 365 into Business Basic, Standard and Premium, marketing them to home users from personal, family and student. The pricing strategy and packages have covered the needs of different segments and made the software affordable even to students.

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