Driving licensing

Online software licensing is often a sensitive subject for resellers because frequently they do not feel confident that their role in the process is secure. But if resellers can learn to make the most of the changing programmes, they should continue to profit.

Online software licensing is often a sensitive subject for resellers because frequently they do not feel confident that their role in the process is secure. But if resellers can learn to make the most of the changing programmes, they should continue to profit.

Vendors and distributors are generally very positive about selling software licensing online. Vince Blackall, head of UK channel business for Veritas Software, says: "Licensing is a more efficient delivery mechanism. A major benefit is that it enables resellers to track the progress of each order and thus provide a better service to their customers."

James Wright, software business unit manager at Computer 2000 (C2000), says online licensing takes most of the effort - and therefore most of the cost - out of the equation for the reseller.

"Some licensing programmes are very complicated and it might take four conversations for resellers to establish their needs. With online licensing, they can select the products themselves using a single tool. We do all the hard work for them, and that is a pretty big deal," he says.

C2000 was the first company to introduce an online licensing service to the UK just over a year ago. Wright says the impact has been significant, with sales increasing every month and doubling in both December and January.

Improved sales through online licensing

Although suppliers are reluctant to reveal figures, it seems clear that a significant proportion of distributor software sales are done through licensing, and much of that business is online. Licensing sales are growing, while boxed product sales are on the slide in the business-to-business sector.

Peter Nevison, category manager for software at Ingram Micro UK, agrees that online licensing is a positive development for resellers. "They no longer need to know the programmes, they just need to know what they want. The tool will calculate their pricing level within the programme rules."What would have taken a phone call or required trawling through vendor collateral and price lists can now be done in three simple steps: select the vendor, select the product, select the quantities, and bingo."

Nevison points out that, even if resellers know the licensing scheme of a particular vendor inside out, they still have to go through the price list to identify the stockkeeping unit before placing an order manually.

Another important point is that the main drive for growth in licensing sales seems to be coming from a handful of resellers, such as Action, Microwarehouse and Software Catalogue. Corporate licence sales though programmes such as Microsoft Select remain largely unaffected.

One reseller addressing that market told Computer Reseller News that it is not worthwhile pursuing licence sales in the corporate sector. "There is no margin in it for a start, and most companies already have a Select agreement," he said.

Small users should benefit

Resellers targeting smaller users are meant to be getting the most out of these online tools. But not many SME resellers seem to be aware of the schemes. And if they are, they don't think they will make much difference.

IntraLan, an SME reseller operating in Surrey, tries to sell Microsoft Open License agreements to any user that has a need for more than five copies. This is the precise point at which it becomes cost-effective to buy a licence under Microsoft's schemes.

Phillip Mitchell, managing director of the company, says: "Our customers are SMEs with up to 50 seats and they don't know that licensing is there; they aren't interested in it. Making it simpler won't make any difference.

In a sense, if they made it more complicated that would be better, because then customers would not try to do it themselves."

Tony Price, managing director of online corporate reseller Wstore, says the online tools that distributors offer have their limitations. "It has helped speed up ordering, but for resellers the process is still manual. They need to have a tool of their own."

Adding value, reducing cost

Alex Tatham, commercial director of Ideal Hardware, thinks the concept can be taken even further. He sees it as a way of adding value as well as reducing cost for resellers. He believes that end-users should be able to not only purchase a licence from the reseller, but also to see all licences currently running and be alerted to the use of any under-licensed products. The licence could then be renewed automatically, says Tatham.

Distributors are already planning to give resellers the front-end online sales functionality. In their eyes, this will make the process even easier and more profitable for resellers.

Certainly, more needs to be done to accelerate uptake of online licensing if it is to become more than a simple alternative to getting a quotation on the phone.

Treading carefully around a perceived threat

According to Computer Reseller News sources, the number of resellers actively selling licences has hardly been affected by the new schemes. Instead, those that do sell licences are simply selling more.

While these businesses move towards becoming main agents for software licence sales, others may see it as a threat to their existing software sales, whether boxed or handled manually. This is why vendors and distributors, although positive about the concept, are more circumspect about the future impact of licensing sales.

"The licensing portion at Veritas is growing but it's early days yet," says Blackall. "We can't yet determine whether online licensing sales are part of our natural growth or the direct result of implementing electronic licensing."

Duncan Reid, product marketing services manager for licensing at Microsoft, says: "There will always be a market for boxed product in the consumer and retail market. With volume licensing, we now have paper or electronic licences through eOpen (Microsoft's online registration scheme).

"Our customers don't want the media and the manuals; they simply want confirmation of the licence. For any business that needs five products or more, it is cost-effective to be on a licence."

Reid agrees that for most businesses it makes sense to move towards licensing, but that it will not suit everyone. Vendors are reluctant to commit all their future licensing sales to the online route.

"The licensing programme does not preclude resellers from talking to us," says Blackall. "We view licensing as a delivery mechanism for software only, not as a substitute for distributor and reseller relationships."

You just can't replace the third parties, says Reid. "Our partners have developed relationships with our customers and they add value to those customers, not just in licence sales but in many other areas as well. We are absolutely committed to that channel," he says.

The comfort factor

Distributors are eager to stress that the human factor is still in place as well. "Resellers still like to talk to someone," says Wright. "There is a comfort factor in having someone to sanity-check what they have quoted.

"They also need human contact for post-sales queries around pricing, vendor rejections and returns."

This means that for the distributors at least, only a limited amount of the cost of selling licences is taken out of the equation. This flies in the face of all the other evidence that suggests online licensing sales might lead to direct vendor software sales. If resellers need support, customers will need it as well. Vendors cannot - and won't want to - scale up to meet that requirement.

Ain't no stopping it now

But while it is easy to see why suppliers are reserved about the prospects of online licensing becoming the main route to market for business software sales, its onward march seems inevitable.

"It is tough to see a negative from any perspective in the channel," says Blackall. "Distributors, resellers and vendors will become more efficient in selling and marketing their products and services. Less time will be wasted processing orders, larger end-users can deploy product without pallet-loads of boxes and manuals being delivered, and vendors will have more visibility of their channel business through daily point-of-sale information."

Visibility of the vendor and/or distributor will certainly increase.

Vendors and distributors make all the right noises on this issue. "We want to support our channel to make them more successful with our products, not replace them," said one.

Another added: "This is the channel operating efficiently, allowing distributors to offer a value-added service which can be charged for as a service fee or as a margin increase."

Resellers as agents

Even so, it is likely that in many circumstances, the reseller will become little more than a third-party agent for the licence. Would this matter to the resellers?

Chris Roberts, at Malvern-based Universal Systems, says that if Microsoft and other vendors did eventually sell software direct and through electronic means, it might help resellers. "It's high-volume, low-margin product and it would not worry us at all. In fact, it would probably save us a lot of hassle."

Users who buy software always want help with installation and setup, which resellers tend to have to supply for nothing, he says. Without this option, they may have to pay for help.

Mitchell echoes these views and points out that in most cases, users already do pay for on-site help and support, and that most software vendors have no obligation to provide support at the moment. But if they sold licences direct to end-users, vendors would be in some way obliged to provide some online help. That would cost a lot of money.

Lending a helping hand

But resellers might still be compelled to provide help when customers asked for it, even if the vendor had supplied it directly and electronically.

"If I said 'no' I probably wouldn't get any more business, even though there is no obligation for me to do that," Mitchell points out.

Price doesn't think it will happen anyway. "It comes down to payment terms, support and infrastructure. You will always need distribution and resellers because manufacturers do not want to deal directly with 10,000 resellers, and they certainly don't want to deal directly with three million businesses."

Wright agrees. "Vendors just don't want to have relationships with 5000 resellers and extend credit limits to them all."

The biggest impact of the introduction of online licensing systems, he says, has been the reduction in the time taken from the initial enquiry to the issuing of a licence.

This process can now be completed, in some cases, within a day. Previously, seven working days would have been a fast turnaround.

This adds to the probability that, in the future, there will be less hands-on involvement of the reseller in the sale of a software licence.

Box sales suffering

Licence sales are already taking over from box shipments, according to one of Computer Reseller News' sources. "In the second half of last year, our licence sales were up 30 per cent year on year while box sales were fairly flat. The obvious conclusion is that licence sales are replacing box sales."

If this happens, the reason for the reseller to be involved in the licence sale diminishes. There is no value to add, barring the pure configuration and integration of the software, and this is what most resellers are providing and getting paid for already.

Could online licensing be a step towards full electronic distribution of software? Blackall says that it could be if that is what customers want. Price says that box sales will take a long time to disappear because small businesses and consumers will continue to buy off the shelf "until licensing works for one product like it works for 20 products".

Protection against piracy

He also points out that the prime benefit of licensing is that it makes management of software easier and provides protection against illegal and improper use - for both the user and the supplier. Also, downloads take time, and most users still don't have the bandwidth to cope. For this reason, CD-based distribution of original copies is likely to remain the preferred method of physical software delivery.

However, the crackdown on piracy that is now being executed by the British Software Association - supported by Microsoft - is going to increase the online activity of software users. They will need to activate products, online or over the phone, and volume licence users are being asked to renew their licences online.

These measures will help to reduce illegal use, but in the war against software piracy, using hosted services or electronic means of distribution both have their attractions.

Electronic distribution would allow Microsoft and other software vendors to avoid ever having to ship 'gold' CD product. As a result, any piece of software that was not distributed directly by the vendor or its partners would have to be a pirated copy.

Adherence to licence terms would still be an issue, but electronic distribution could also give the vendor a door into all users' systems. They may try to use that door to monitor usage levels.

ASPs: the legal issues

The ASP model is attractive for similar reasons. The customer never has to physically possess the software, and monitoring of usage is easy; the host will know what the client is using. The Federation Against Software Theft has already expressed concern about the legal implications of ASPs, and warned users to make sure that they are, and stay, legal. It has warned users that they must not abdicate their responsibility for primary infringement of copyright or breaches of licences, and advises users to check contracts and licences with lawyers. But both electronic distribution and ASP models are not seen as directly relevant to the licensing issues by most players in the licensing market. It might, however, be seen as an alternative in the longer term, especially if the vendors press forward and encourage more uptake. However, it is far too early to say whether they will, and most resellers remain unconcerned about the perceived threat of ASPs to their business. Price says that licensing and ASPs are completely different "With licensing you buy the software, and because you buy the software you have to make sure every machine that uses that software is legal. Using an ASP means you specify how many users can access the software. I don't think ASPs will ever replace licensing but I'm sure it will take some of the business."CONCLUSIONS

• Online licensing schemes are making it easier for resellers to quote for licence sales and cutting quote-delivery times from seven days to one.
• Licence sales are increasing at the expense of boxed product sales, and online licensing is accelerating this process.
• Resellers need to have their own online licensing tools to get the full benefits. This may also induce more resellers to sell licences.
• Resellers may take on more of an agency role as a result of online licensing, but will still be required to manage customer relationships.
• Online licensing sales may help vendors in their fight against software piracy, but this is not a key objective for its introduction.