Everything you ever wanted to know about Monetizing your Software Application

Published on: August 31, 2022
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Software development is a very highly skilled, usually very iterative endeavour, requiring lots of time and effort, and many people-hours to produce a good output. Although there are many who have primarily altruistic reasons to engage in such a laborious undertaking, there are many reasons to want to derive some form of remuneration, whether it is to make a living off of the activity, expand the capabilities by hiring developers, to simply be able to keep the software project alive. Let's look at some ways different types of software can be monetized.

How to Monetize Free Software

You can indirectly monetize your software by offering a Freemium model. Many companies use this methodology to give users a base version of their product alongside premium product tiers under a commercial license.

How to Monetize Open-Source Software

By making your software open-source, you can receive more views from the open-source community, allowing multiple users to look into your product and test it for themselves. You can then monetize your product by offering commercial licenses for that open-source software, that unlock premium services.

  • Offer close-sourced features on-top of the open-source software
  • Offer sourced licensing models in addition to open sourced license models for the project.
  • Host Services/SaaS
  • Provide Consulting, Technical support, and onboarding

Some examples of open-source software that offers commercial licensing include:

  • MySQL: offers 24/7 customer support, database servers, extra storage, and add-ons such as MySQL Shell for their paid tiers.
  • Qt: offers technical support and account managers, as well as different pricing tiers for design, development, and QA.
  • Lightworks: the base product is a free Video Editing Application, but locks close-sourced features and cloud storage behind a paid tier.
  • Julia Computing, locks their browser-based IDE service JuliaHub behind pay-per-usage.

Freemium Model

In a freemium model, you offer your software (close-sourced) for free, but lock extra features behind a paid tier. Some freemium monetization models include:

  • Limit usages of the software/service and unlocking more/unlimited usages in the paid tier.
  • Control the amount of time that the software/service can be used, and unlocking more time through payment.
  • Cripple functionality unless the user is on a paid tier (Ex. remove the watermark in a video editor).
  • Including extra services in the paid tier (customer support, onboarding, account managers, etc...)

Different Monetization Solutions for Commercial Software

Subscriptions

A subscription model will ask the user to renew their license after a certain period of time. The user will need to pay each subscription period, if they want to continue using the product.

Subscription models are particularly effective at increasing lifetime value of customers both for B2B and B2C.

An example would be Norton Antivirus, which offers a one year subscription plan in which the user can use the software to its full capability within that one year, but will need to renew their license each year.

Per-use

A per-use model will vary the pricing of the product based on the usage. This model offers more flexibility for the customer as they pay based off how much they need.

This is common in Cloud providers who charge per Compute Cycle, or per bandwidth used.

For more on Per-use, see Per User Pricing.

Floating

Floating models allow for concurrent usage. They allow for an unlimited number of different users, but only a certain number of users at any given moment. This model is prevalent in B2B scenarios, as it can be used at a workspace so that only a certain number of employees can access the software at a time. Customers will often request to use floating licenses since this model tends to be cheaper for them. compared to a standard node-locked license on every machine. For more on software that uses floating licenses, see here: What is a Floating License.

Perpetual End-User Licensing

A License is sold directly to an End-User, who is granted a license to use the software. Unlike subscription and per-use models, the user will need to be fully purchase the software application upfront. They can't decide to cancel their subscription later on, or stop using the product to limit the amount of money they spend. For that reason, this model is useful for products that are trust-worthy, recognized, or include trial products that give users confidence in buying the product.

Some examples include CAD software and video games that allow users to buy the product and use the product to its full features, and is prevalent when selling B2C, or to SMBs.

Should all Software be Monetized?

Not necessarily. There are many examples of open-source software that benefit the world without asking for anything in exchange, or rely on donations/sponsors. In fact, many commercial products themselves depend on free or open source software to operate. For example, many of our SDKs use curl to securely transfer data from the client application to the LicenseSpring servers.

There are also plenty of benefits to giving out software for free. You are likely to get more traffic, more contribution, and better feedback on your project.

Hopefully this guide helped introduce you to the concept of monetizing your software product, but in the end, it is up to you to decide if and how you will monetize your product.

Last Updated: September 27, 2022