Dan Griffith Freescale Semiconductor EDA Software Asset Manager Logo Area for Speaker Why We Need To Move To Utility Pricing

The Movement From Perpetual Licensing  In 1998, Motorola and the EDA community began to move from Perpetual site locked licenses to Time-Based globally floating licenses This was a giant step from the both the software vendors and their customers. It was a true win-win move forward WARNING: This presentation is from the viewpoint of the Electronic Design Automation (EDA) industry.

Need For A New Model  Today, six years later, Time-Based licensing or Subscription licensing models are no longer meeting the business requirements of either the software vendors nor their customers. Lets look at why

Time-Based vs. Perpetual Licensing  The main differences between Time-Based Licensing (TBL) and Perpetual licensing: –TBL’s typically are allowed to “float” anywhere within the customers internal network vs. restricted to a site or system. –TBL’s expired at the end of the contract making it easier to move to new technology vs. 99 year keys (perpetual) –TBL’s annual access fee included maintenance vs. an additional annual maintenance fee. –TBL software pools are remixable vs. fixed Time Based Licensing Brought Many Good Things To The Table

Addition Advantages of Time-Based Licensing  Subscription and Time-based license models provided the following: –Company wide global access to the same tool set. –Single point of sales and business contact within companies for the vendors. –Usage efficiencies due to global license sharing. –Opportunity for wider adoption product offerings for vendors. –Easier adoption of new technology These too, are all good things!

Short Comings of Time-Based Licensing  There are two major problems with current Time-Based and Subscription based license models: 1 Despite our best efforts, on any given day, the customer has either to many or to few licenses of any particular tool. 2 On the days when the customer has to few licenses, engineering activity is limited while the software vendors are locked out of a revenue opportunity. A Lose – Lose Scenario

Why We Need Utility Pricing - Peak Demand Freescale captures and records peak tool usage every 10 minutes. The graph below shows that engineers were denied licenses for three short periods in one week. While this impacts engineering, no mechanism exists to meet this limited demand and provide the needed capacity. With excess licenses available 98% of the available hours, management is unlikely to approve additional purchases. Lose - Lose 8/23/2004 – 8/29/2004 Feature: SimSuite Pool: Freescale Available Licenses 103

Why We Need Utility Pricing – Requirements Analysis LinkRight’s Tracker CSAM’s Six Peaks Report CSAM’s 10 Minute Peak Report Freescale uses 3 rd party and internally developed tools to analyze requirements

Why We Need Utility Pricing – To Many To Few Still, after hours of detailed usage analysis, at any give moment, we still have either too few or too many licenses 8/23/2004 – 8/29/2004 Feature: SimSuite Pool: Freescale To Few Licenses impact engineering To Many Licenses means low utilization metrics making it difficult to justify additional Purchases.

Why We Must Move To Utility Pricing - Vendors need the opportunity to increase revenue. - Customers need tool availability to match fluctuating engineering demands. The solution can only lie in a new pricing model. That model appears to be some form of Utility Pricing.

Utility Pricing Utility Pricing refers to any pricing model which has a variable component. The electric company is an example of Pure Utility Pricing. Usage is metered and you pay only for what you use. Cell phone plans are a variation of a pure utility model with a fixed free for a fix number of minutes plus a variable fee for roaming and additional minutes. Neither software vendors nor their customers seem willing to take the leap to Pure Utility pricing. The risks, rather real or imaginary, appear to be too great for both. A variation of pure utility pricing may need to come first.

Variations in Utility Pricing – Token Based Token Based The customer purchases a quantity of software tokens. Each token has a dollar and time value. Example: Company Industrial Semi purchases 1,000 tokens. 24 hours of TestSuite (List Price $25K) = 1 token 24 hours of VeriSuite (List Price $50K) = 2 tokens 24 hours of SimSuite (List Price $150K) = 6 tokens 24 hours of RouterSuite (List Price $650K) = 26 tokens The license manager keeps track of the number of tokens utilized. When the 1,000 tokens are exhausted, Industrial Semi must purchase more. Plus: Provides great flexibility in usage of available products. Provides Vendor with additional revenue opportunity. Minus: Complex accounting when a large number of products are involved. Once tokens are exhausted, customer must purchase additional tokens or lose access to the technology.

Variation in Utility Pricing – User Based Flexible User Vendor defines 1 to 3 product categories, provide unlimited access to all but the most expensive tools, and charges by the user not the usage. Customer commits to a minimum number of users in each category. Example: Software vendor Acme Router has 80 product & provides two software categories. 1)General – Includes unlimited access to all tools with a list price of $200K or less - Committed users are $5K each per year. Additional users are $6K each per yr. 2)High End –Adds access to tools costing greater than $200K ea with some limits. Acme Router has 6 tools with a list between $200K - $800K - Committed user are $14K each per year. Additional users are $16K each yr. - No single user can access more than 5 lics concurrently of a tool costing more than $200K. Plus: Provides great flexibility in usage of available products. Provides Vendor with additional revenue opportunity as company expands. Budgetable for customer and committed minimum forecastable for vendor. User count, accounting method fairly straight forward. Minus: Customer is committed to a minimum number of users. Vendor’s revenue growth directly tied to customers growth.

Variation in Utility Pricing – Usage Based Pure Utility Model A pure utility model is enable by FLEXBill. Vendor provides unlimited licenses. The customer’s encrypted usage report logs are sent to Macrovision for analysis. A usage statement and invoice is prepared based on actual usage per the contract terms between the customer and software vendor. Plus: Provides unlimited access to tools on demand. Provides vendors with opportunity for increased revenue. Minus: Difficult for customer to budget and control costs. Difficult for vendor to project revenue. Additional costs involved with data analysis. Usage log translation is complex.

Variation in Utility Pricing – Usage Based Pure Utility Freescale analyzed the potential effect on software costs if a group of users were allowed access to an unlimited pool of very expensive software licenses. Without controls, the potential costs quickly rose above what was affordable. Unaffordable Usage Level Affordable Usage Level Cost controls put in place

Model Comparison PerpetualTime Based Pure UtilityToken Based Flexible User Peak Demand Access No Yes Budgetable / Cost Controls Yes Varies each period Some Predictable as users are hired Customer Cost Risk No Potentially Unlimited Once tokens are used If users are hired Opportunity for revenue growth by vendor Not without sale Requires Pool Increase Automatic upon demand Once all tokens used As users are added Vendor Revenue Forecasting Yes Varies each period Minimum commitment Accounting Complexity 99 yr licenses 1 to 3 year licenses Requires usage log translation Token Counting User Counting

Model Comparison Utility Models are the only models that provide for peak demand licenses for the customer and an opportunity for automatic revenue growth for the vendor. Here lies the future.

In Conclusion Each customer must work with their vendors to select the best pricing model for their business. All the models, Perpetual, Time-Based, User Based, Token Based, and Usage Based will continue to be viable in a given business space. Customers and Vendors must work together to develop new pricing models, beyond the five discussed here, which more closely meet all of our business needs. Utility Pricing offers the best hope for accomplishing that goal.