Competitive Analysis of the Software Licensing and Monetization Market. Selected Findings from Frost & Sullivan s Analysis of the SLM Market

Transcription

1 Competitive Analysis of the Software Licensing and Monetization Market Selected Findings from Frost & Sullivan s Analysis of the SLM Market A Frost & Sullivan White Paper

2 frost.com Opportunities for Growth and Forecasts... 4 Competitive Landscape Map... 5 Methodology for Constructing the Competitive Landscape Map... 6 Detailed Competitive Analysis for Gemalto... 7 Significance of Strong Positioning in the Software Licensing and Monetization Market Landscape... 7 Interpreting the Competitive Landscape Map... 8 Contents

3 This research service is part of Frost & Sullivan s extensive coverage on digital media. Our digital media coverage encompasses all technologies in the digital media value chain, spanning the acquisition of content in a digitized format, management of that content, and final delivery. Frost & Sullivan analyzes the digital media value chain from an enterprise perspective, where it is largely used as a tool to facilitate marketing and corporate communications, as well as from the perspective of the media and entertainment market. The Software Licensing and Monetization (SLM) market, which covers solutions to manage entitlements for software, software-powered devices and software as a service, is covered as part of our series of reports on content protection, and entitlement and rights management. This research analyzes the competitive landscape in the SLM market. SLM enables software publishers and intelligent device vendors to efficiently monetize their products, particularly for enterprise and networked deployments. Electronic feature management allows device vendors to dramatically simplify manufacturing and product delivery by building and distributing a single product SKU, and controlling features and capacity through electronic activation and de-activation. The primary challenge for software-powered devices and products is to efficiently yet robustly implement electronic feature activation, allow automated enabling and disabling of features and capacity, and implement automated back-office monitoring and provisioning functions in agile and scalable fashion. Monetization solutions provide the client-side enforcement and server-side management features that allow hardware vendors to transition competitively toward software-based architectures and usage-based business models. While monetization has become the primary focus of SLM solutions, piracy prevention remains a significant component of the value proposition as well. Piracy and counterfeiting may be experienced in the following ways: Intentional use of hacked applications with defeated or disabled license management Over-use or under-reporting of software by licensed customers (by volume, time, features, etc.) Counterfeiting by manufacturing partners or unauthorized entities, who manufacture more units than they deliver and sell the extra units on the gray market Unauthorized unlocking of excess capacity or premium features in intelligent devices In order to meet our definition of SLM, a solution must provide three key functions: defining software versions and licensing rules (development); automating license issuance and invoicing (deployment); and ensuring that software is used in accordance with the terms of a purchased license (enforcement). Overall, the value and opportunity for differentiation in SLM solutions is shifting toward features and architectures that enable flexible, hybrid business models and serve as revenue-enhancing tools rather than piracy-restricting measures. Frost & Sullivan analyzes the SLM market in two application segments: Software and SaaS products: This includes B2B software, B2C software, and software as a service. Typically such software provides productivity, utility, or enterprise functionality. There is evolution under way in this segment owing to factors such as increased use of portable computing, growing deployment of business software in the cloud, and continued expansion into subscription-based and usage-based pricing models to complement or replace traditional annual or perpetual models. Overall, however, this is a mature and steady segment for the SLM market. Embedded software: This includes software that runs on dedicated device-based form factors, typically in tightly controlled environments, and typically with low flexibility, low fault tolerance, and low power consumption. Devices powered by embedded software are often referred to as intelligent devices. This All rights reserved 2016 Frost & Sullivan 3

4 Creating Meaningful Customer Engagement segment is in a phase of significant transformation due to the rise of the paradigm of Internet of Things (IoT), rapid growth in IP-fication and data-driven operations in fields like industrial automation, and energetic growth forecasts particularly in automotive and healthcare applications. Opportunities for Growth and Forecasts This market is highly saturated, with the top three vendors accounting for over 80% of the market by revenue. However, there is a strong entrepreneurial bend to the market, as leaders must continue to proactively anticipate and serve new applications and business models in order to remain relevant and continue to grow. Smaller competitors are continuing to gain maturity and mindshare, and are challenging incumbents on pricing, feature set, customer service, and flexibility. The term software monetization is itself being used across related but different markets such as SaaS metering and automated billing, muddying the waters for prospective customers. Homegrown alternatives, particularly for back-office components, also pose a competitive threat to incumbent vendors. In-house spending on SLM functionality is not included in our formal market size numbers, which report served market (SAM) rather than accessible market (TAM). The embedded segment offers promising growth opportunities, but with its share of challenges. Software monetization is now a key element of the entire embedded industry, with anti-counterfeiting as a critical side of the same coin. However, our rate of forecasted revenue growth is lower than its full potential, for several reasons. Large device manufacturers often license technology for each individual product line, resulting in many small deals rather than enterprise-wide adoption. While multi-million seat deployments are typical for ISVs, embedded products are sold in smaller volumes and are replaced less often, resulting in lower average deal sizes. While development and deployment models for ISVs are fairly standardized, the embedded ecosystem is heavily fragmented in terms of processors, operating systems, development and testing tools, and external interfaces this makes it complex to develop and deploy the monetization layer. For vendors who are able to aggressively solve these challenges, the potential upside could be significantly higher than our conservative projections. Another driver is the move to augment traditional perpetual licensing models or capital expenditure (CAPEX) purchase models with usage-based or OPEX pricing models. Originally considered a software-centric trend, this has now become one of the defining characteristics of the embedded market as well, driven by the paradigms of the IoT and connected devices. Short-term drivers for this transition include customer endeavors to control costs and optimize expenditure on software and computing resources, and vendor endeavors to tighten the loop between sales, marketing, and engineering and to quickly pivot to meet changing customer needs. Connected, data-driven business models are transforming every industry. A global boom in segments such as industrial automation and healthcare are already translating into exciting new growth for the SLM market, with other verticals such as telecommunications and automotive expected to grow over time. However, for commercial monetization solutions to be a viable enabling candidate for this transition, they must meet the high reliability, low memory footprint, low execution overhead, low latency and high agility requirements of this demanding application. Growth rates for the SLM market have been under pressure from impending saturation in the software segment, slower-than-expected uptake by SaaS providers, and long sales cycles with embedded manufacturers. To be clear, revenues continue to rise, but at a slower pace is expected to mark an inflection point for the market with a new cycle of accelerated growth, driven primarily by increased uptake in the embedded segment, which is transforming to embrace the paradigm of the IoT. 4 All rights reserved 2016 Frost & Sullivan

5 EMEA, traditionally the leading consumer of SLM solutions, has seen a recent slowdown in growth, owing primarily to delayed investments and truncated projects. There is reluctance from vendors and customers alike to invest in upgrading their infrastructure and products amid an uncertain economic and political climate. North America is rising to be the largest region by revenue as ISV sales stabilize and embedded revenues grow. North American growth has also been continuous conversion from in-house to commercial license management solutions in this region, which is home to some of the largest ISVs, cloud service providers, and embedded-device vendors worldwide. Frost & Sullivan estimates global revenues for the software license management market at USD 316 million in The market is expected to grow cyclically over the next five years for a CAGR of approximately 6%. Competitive Landscape Map Frost & Sullivan competitive landscape positioning maps provide a reliable, third-party industry snapshot of the relative positioning of vendors in any given market, based on product line strategy and market penetration. In Frost & Sullivan s recently published market engineering study on the Software Licensing and Monetization Market, Gemalto emerged as the clear market leader. The chart below represents our competitive landscape analysis for this market. An explanation of the methodology and an in-depth competitive analysis for Gemalto are provided in subsequent sections. Competitive Landscape Analysis Total Software License and Monetization Market: Competitive Landscape, Global, 2015 Software Monetization Product Line Strategy Competitor 2 Competitor 3 Competitor 4 Competitor 5 Competitor 6 Competitor 7 Competitor 8 Competitor 9 Competitor 11 Competitor 10 Competitor 12 Competitor 1 Gemalto Global Software Monetization Market, Market Penetration (2015) Niche Participant Emerging/Receding Participant Contender Challenger Market Leader All rights reserved 2016 Frost & Sullivan 5

6 Methodology for Constructing the Competitive Landscape Map Frost & Sullivan s competitive landscape map provides relative positioning of vendor participants in terms of their current market share and strategic positioning for onward growth. The following factors are considered in constructing the landscape: Current market share by revenue. The size of the company s circle, and its X axis coordinate, correlate to the current size and strength of the vendor s market position. The higher the market share score, the more dominant the company is in the market at the present time. Relative strategic excellence. The company s position on the Y axis correlates to its strategy score, which is computed based on factors specific to the target market. The higher a vendor s strategy score, the more likely it is to outperform the market and grow market share. Factors for the software monetization management (SLM) market include: Number of customer segments targeted: Companies with products that address the needs of larger sections of the market score higher on this vector, while niche vendors score lower. Companies serving a broader set of customers are also more likely to be able to adapt to emerging technology needs and serve evolving needs of customers; for example, software publishers who are expanding beyond on-premise software and node-based licensing models to virtualized and service-based offerings and usage-based or subscription licensing. Intelligent device applications are a critical growth area for this market. Geographical reach: With tier-i customers for the SLM market located across North America, Europe and advanced Asian markets, local presence in these regions is critical to ongoing growth. Additionally, as software publishers and device vendors focus on growth markets for new revenues, corresponding global diversification by license management provides valuable support for publishers and their end consumers. Product offering hardware and software: As consumer preferences evolve and security technology matures, there is increasing fragmentation in demand for SLM technologies to both hardware-based and non-hardware (i.e., software-based) enforcement. Vendors offering both enforcement options, particularly those with equivalent functional depth and security strength across both options, are best positioned to meet the current and future needs of consumers of SLM technology. End-to-end solution: License management solutions are an integral part of the business enterprise. Once chosen, a solution will be closely interwoven into a company s applications, its business operations process, and into back-office infrastructure. Vendors who offer solutions across client-side enforcement, back-end office operations, SKU/edition definition, analytics and related components are better positioned to help their customers solve the overall problem of software monetization in current and emerging business models. Price competitiveness: Businesses today are closely controlling costs. At the same time, competition in the license management market is growing. Price of a solution, in terms of upfront cost, maintenance fees and hardware cost (where applicable) is an increasingly important factor in choosing (and perhaps replacing) a license management vendor. 6 All rights reserved 2016 Frost & Sullivan

7 Detailed Competitive Analysis for Gemalto Gemalto, which recently acquired long-time market leader SafeNet, continues to dominate the market with approximately half of total market revenues and a total market share nearly twice that of its nearest competitor. Gemalto s lead is not ubiquitous; it takes the second spot in software-based enforcement in the North American region. However, its second place is by relatively small margins of market share, while the segments it leads are by wide margins. For example, Gemalto notched up an imposing 65% market share in the dongle segment in 2015, which was more than three times that of its nearest competitor. The company will earn an estimated market share of 60% by revenue in the embedded sector from a combination of hardware and software and services sales in 2016, which again is a multiple of its nearest competitor. The company is well positioned for continued leadership in this market based on its widely adopted and trusted Sentinel product line. The company s strengths include its end-to-end offering spanning all form factors and applications, supported by extensive professional services offerings; its award-winning product portfolio across desktop, cloud and embedded verticals; continued trust in its brand and in its ability to fulfill the role of a trusted business-critical partner; and proactive innovation toward its ongoing quest to differentiate as the best-in-class provider for traditional and emerging use cases in the field of software monetization. Even as traditional competitors have sought to move into new geographical markets and establish leadership in disrupted and new applications, Gemalto continues to maintain and strengthen its leadership through a combination of entrepreneurial innovation and entrenched market position. Gemalto is stronger in Europe and the Far East from a direct sales perspective, but its presence in North America is solid and continues to grow. A noteworthy portion of its business comes from competitors (or co-opetitors) reselling its dongles. Sales are well balanced geographically, and R&D teams are globally distributed. From a market participation standpoint, Gemalto competitively serves both software and embedded verticals. The company offers both hardware-based and software-based enforcement options, with low-footprint design options for restricted embedded scenarios. Sentinel s back office provides the ability to consistently unify disparate enforcement and activation technologies under a unified interface, allowing business units such as finance, sales and marketing to benefit from data insights and analytics, while also giving engineering and product management teams flexibility and efficiency in how they can respond to new feature requests and new go-to-market strategies. Significance of Strong Positioning in the Software Licensing and Monetization Market Landscape A combination of significant market share and high strategy score indicates solid current position and bright future prospects. Companies with high strategy scores but relatively small market share indicate interesting early stage investment prospects, while vendors with clear leadership positions in the map hold the strongest potential for longterm market dominance. For prospective license management customers, a highly ranked vendor represents a proven, market-leading solution and can provide the reassurance of long-term viability. This is particularly relevant for the SLM market, where replacing a license management system becomes increasingly disruptive and time consuming often prohibitively so once products have matured and have a large installed footprint. High vendor market share also indicates a significant ecosystem of existing customers, and consequently indicates a higher probability of finding supporting resources such as trained personnel, accessories, support, and interoperability with complementary applications. In the specific case of the license management market, choosing a widely adopted solution also minimizes the probability of disruptive network or workflow integration requirements by the end-product licensee (such as a software publisher or a consumer of embedded devices). All rights reserved 2016 Frost & Sullivan 7

8 Interpreting the Competitive Landscape Map The competitive landscape map distils market participants into five classes: a. Market Leader. Market leaders are typically established vendors with significant market share leadership, strong product lines and broad geographical outreach. Market leaders with high strategy scores are likely to continue to dominate their industry over the forecast period, and are likely to be a reliable long-term partner or provider. Conversely, market leaders with lower strategy scores than adjacent vendors are likely to be reaching saturation or slowing their innovation initiatives, which makes it likely that the vendor will lose market share to challengers in the near future. b. Challenger. Challengers typically have smaller market share than market leaders overall, but excel in one or two market segments. Depending on the strength of their crafting and execution of strategy, they may either win growing market share to move closer to market leadership position, or drift backward into the contender bracket as they continue to lose market share to the leader. c. Contender. Market contenders are typically smaller companies in terms of market share and size, but typically have significant technical and execution strength and are likely to become increasingly significant in terms of market share and market influence over time as product maturity and geographical outreach grow, and as their brand becomes more established. d. Emerging and Receding Participants. These vendors typically have relatively small market shares, and are either very early stage companies or have relatively lower momentum toward significant growth. Successful early stage companies emerge toward contender status over time, while stagnant or perishing companies gradually recede out of the market either through closure or via acquisition. e. Niche market participants typically dominate a specific, narrow vertical in the market and are therefore a noteworthy presence in the marketplace, but are typically unlikely to grow beyond the niche to emerge into a more significant position unless they significantly rework their product line and execution strategy. 8 All rights reserved 2016 Frost & Sullivan

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