A license to profit

Nov 01, 1998 10:30 PM  By

The Microsofts, Lotuses, Adobes, and other heavy hitters of the estimated $5.6 billion software industry don’t want you to sell software to business customers with multiple users. Instead, they’d prefer that you license the software. And most catalogers are happy to comply.

Rather than selling shrink-wrapped software packages with disks, CD-ROMs, and printed manuals, more catalogers are licensing software and fulfilling it via Internet downloads. In fact, some catalogers estimate that software licensing sales are growing as much as 10 times faster than software sales for many mailers.

Licensing software differs from selling it outright in that the customer does not receive a tangible product. Instead of receiving bulky instruction manuals and disks, which can easily be copied and pirated, customers receive the software program and an instruction manual quickly and easily via the Internet.

For catalogers, licensing represents “a slightly lower selling cost than selling shrink-wrapped software packages,” says Greg Zeman, president of $1.28 billion cataloger Computer Discount Warehouse (CDW), “because all you’re distributing is an agreement printed on a piece of paper.” But he adds that, even after taking into account the slashed fulfillment costs, the margins for software licensing aren’t significantly better than those for software sales.

And licensed software programs are usually copy guarded, so that no more than the predetermined-and paid-up-number of users can access the software. “With software sales, there was a lot more pirating going around, most often with customers not even realizing they were pirating,” notes David Williams, Microsoft product manager for $801.8 million software cataloger Insight Direct. “But licensing is a way for software vendors to make sure customers are in compliance with the legalities.”

A subtler advantage of licensing for catalogers is improved customer loyalty. Customers are likely to return to the same marketer to update their licenses, rather than turning to another distributor, which would require them to reapply all over again.

A number of catalogers now advertise software licensing options more prominently in their books, offering the option for each product displayed. And over the past several years, some computer mailers, including CDW and $490 million Multiple Zones International, have created software licensing divisions to negotiate licensing deals with manufacturers.

Still, none of the catalogers contacted boast of great sales or profit windfall from software licensing as compared to straight software sales. But as Insight’s Williams points out, licensing is “purely a customer-oriented convenience.”-PM