Writeimage CSB Annuity Licensing Model Helps Softcat Become Top-Performing U.K. Partner

“We quickly saw that the annuity model could offer higher returns in the longer term than more traditional methods of licensing, by factoring in projected revenues to our annual profit and loss account.”

Ian Goodwin, Microsoft Business Director, Softcat

Softcat is a leading provider of software licensing and a top-performing Microsoft partner. Over the past three years, it has successfully used the Microsoft annuity licensing model to help its customers shift the cost of software acquisition from capital to operating expenditure. The annuity model of non-perpetual software ownership is similar to a leasing arrangement for customers.

Business Needs

Microsoft Gold Certified Partner Softcat—founded in the United Kingdom (U.K.) in 1993, and now with an annual turnover of £145 million (U.S.$234 million)—works with a wide range of corporate and public-sector organisations. It has been a Large Account Reseller for Microsoft products since 2000, and is also a Microsoft Enterprise Software Advisor.

Given the current global economic climate, Softcat wanted to help its mid-market customers—those with between 50 and 1,000 desktop computers—by offering them a licensing model to make budgeting for software acquisitions more predictable. Ten years ago, Softcat introduced the concept of non-perpetual ownership of software to its customers, by advocating the benefits of the Microsoft Open Value Subscription model over buying software upfront. Softcat is leading the way in educating its customers about why it makes sense to adopt a Microsoft annuity licensing model.

Ian Goodwin, Microsoft Business Director, Softcat, says: “We wanted a product that would achieve a substantial reduction in the overall cost of ownership associated with large-scale software. Among the critical factors that contribute to the cost of ownership are licence compliance, cost of procurement, collaborative issues, and integration with subsidiaries. Our experience is that customers want to use the latest versions of Microsoft Office, but sometimes cost is a stumbling block.”

Softcat was keen to move customer costs from capital expenditure (CAPEX), where licences are perpetual, to operating expenditure (OPEX), where licences are on a pay-as-you-go model. In making this shift, Softcat became one of the top-performing Microsoft U.K. partners, in terms of revenue, for the Office suite of information products in 2010.

Goodwin says: “By achieving a shift of software costs in the balance sheet from CAPEX to OPEX, Softcat gives the customer the choice of acquiring more Office products based on buying a solution instead of individual products. And, for us, a significant proportion of our Office revenue comes from recurring revenue. This adds a layer of predictability to our business, which is important—especially in the current economic climate. ”

Solution

Softcat met these challenges for its mid-market and enterprise customers by introducing the Microsoft annuity licensing solution Open Value Subscriptionas an alternative to perpetual licences. Since Open Value Subscription is a fixed cost over a full three-year period, budgeting becomes more predictable for the customer and cash flow is eased.

Goodwin says: “We quickly saw that the annuity model could offer higher returns in the longer term than more traditional methods of licensing, by factoring in projected revenues to our annual profit and loss account.” Consequently, the company is taking a longer term view of its business based on receiving a high percentage of its income as recurring revenue rather than upfront payments for licences.

The licensing solution also helps businesses plan the development of their IT more effectively. “Open Value Subscription removes the uncertainty for customers because budgeting for software acquisitions and upgrades is a challenge—you might not have to do anything for 12 months, but then complete two or three upgrades in a year,” says Goodwin. “There is the additional advantage of the benefits provided through Software Assurance.”

As a first step, Softcat undertook a comprehensive retraining programme for its sales department.Goodwin says: “During the initial phases of the availability of annuity licensing in the open sector, Softcat was responsible for more than 50 per cent of U.K. sales.”

Open Value Subscription helps ensure accurate licence compliance. “Monitoring all aspects of licences—including how they’re acquired, on which computer, or at which company—is often an expensive and time-consuming process. By making payments once a year you can reduce the entire issue of compliance for a whole area of the products you use down to the production of a single document,” says Goodwin.

Softcat undertook multiple strategies to set out the advantages of annuity licensing to customers—a strategy that included coffee cups for clients with the slogan, “licence your software for the cost of a daily cuppa.” The message was reinforced over the web, in print publications, and through direct sales. Softcat also ran sales-related incentives based on the numbers of “seats” of annuity licensing sold.

Benefits

Softcat uses Microsoft Open Value Subscription agreements—which provide a comprehensive solution to licence procurement and management—to support the use of multiple Microsoft products. The agreements simplify what can often be a complex issue for companies in the current business climate. Goodwin says: “The Open Value Subscription model means Softcat can take the longer-term view of each customer’s requirements rather than being motivated by the value of a single invoice for perpetual licences. We act in the role of trusted advisor by selling solutions rather than products to our customers.”

• Ease of integration with new subsidiaries.Open Value Subscription gives flexibility to customers acquiring or selling subsidiaries when there are often issues around compatibility of software. The agreement, which includes Microsoft Software Assurance for Volume Licensing, ensures customers are licensed to use software immediately, without having to consider the budgetary implications until the agreement renewal date.
• Support for customers. The Open Value Subscription scheme includes free problem resolution support through Software Assurance, together with a subscription to TechNet, TechNet Concierge Chat, and access to managed newsgroups. Customers also receive home usage rights for their employees for the Office suite of products.
• Access to a wide product range. The entire range of Microsoft productivity and server technologies can be added to an annuity licensing agreement as required.Because customers always have the latest versions of Microsoft software, peace of mind is assured.
• Comprehensive training and personal development. Microsoft annuity licensing ensures that customers receive the full range of Software Assurance benefits, including training vouchers and e-learning for users.
• Lower procurement costs for customers. Goodwin says: “With only one invoice a year, the cost of raising multiple invoices is avoided.”