December 05, 2005
Intellectual Property Developments
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| by Jack Horgan - Contributing Editor
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In the early days software was licensed to a specific machine, i.e. node locked. A popular alternative became network licensing, where multiple users have the ability to use a software module up to a maximum number of simultaneous users. This gives the customer more flexibility in the use of the software. Initially network licenses were more expensive per user than node locked licenses. This pricing differential has largely disappeared. Under network licensing the software module might run on the individual user's machine or on a server somewhere in the network. In the early days a network was a local area network connecting several computers and devices within a building. Today a
given firm's network can be and is likely to be global with US firms having offshore operations in places like India and China. Given the time difference between these countries, a single software license could be used in two different geographies.
A customer's use of software applications is not a constant. Usage will vary depending upon the number of projects, the number of people assigned to each project, the state of each project and even the time of day. The number of people within a company or at a given site wishing to use a given software module at any given time will vary significantly. The IT organization will be pressured to provide an environment to meet peak demand. The customer would like to pay for its actual usage rather than for maximum potential usage. Users may be prevented from using software when they want because the number of concurrent users exceeds the maximum allowed by the license. If a company lays
off a number of employees, software licenses may go unused becoming shelfware. Of course their offices, furniture and computers will also go unused.
During the dot.com boom many startups positioned themselves as Application Service Providers (ASPs) offering their own specific applications hosted on their machines at their facilities accessible over the Internet or an Intranet. Other firms offered a general capability as a way of supporting outsourcing. Potential customers had concerns about the security of their data and about speed. The benefits were debatable.
If an individual needs a computer of a certain configuration (CPU, memory, disk, graphics,
) in order to run say 10 applications, what savings would occur if he could access 2 or 3 of those applications over the Internet? How much savings would a firm employing such individuals reap in terms of its IT costs (hardware, software, support)? In the third world, however, where computers are scarce, one can imagine a device with a keyboard, small display and Internet access serving as a low cost alternate to providing a computer.
On November 16th U.N. Secretary-General Kofi Annan unveiled the first working prototype of the $100 laptop at the World Summit on the Information Society in Tunis, Tunisia. The laptops are powered with a wind-up crank, have very low power consumption and will let children interact with each other while learning. They have a 500MHz processor, with flash memory instead of a hard drive which has more delicate moving parts, and four USB ports. They link up and share a net connection through "mesh networking" and run the Linux operating system. It is the central project of the nonprofit One Laptop per Child (OLPC) association, a nonprofit organization created by faculty members from the MIT
We now see ASP coming back as Software On-demand or as SaaS (Software as a Service). An example of a company that has had considerable success in this arena is Salesforce.com. The firm, founded in 1999, offers on-demand customer relationship management (CRM) services. They have 351,000 subscribers at 18,700 companies. Their revenue in the last quarter was $82 million. The firm's annual revenues have roughly double for the past several years. They have become a competitor to CRM industry leader Siebel Systems, who has introduced their own version of CRM OnDemand. A second example would be NetSuite Inc., a provider of on-demand enterprise resource planning (ERP) and customer
relationship management (CRM) application software for small and medium-sized businesses.
A second event that triggered this editorial was Microsoft previewing on November 1 two new Internet-based software services - Windows Live and Microsoft Office Live - designed to deliver rich and seamless experiences to individuals and small businesses. Microsoft sees Google as its major competitor and wants to be in a position to compete more directly. Google generates revenue by providing advertisers with the opportunity to deliver measurable, cost-effective online advertising that is relevant to the information displayed on any given page. In the last reported quarter Google had revenues of $1.6 billion, a 96% increase year-over-year. Net income was $529 million. Its market
capitalization is 10 tens that of GM or Ford.
Windows Live is a set of personal Internet services and software designed to bring together in one place all of the relationships, information and interests people care about most, with more safety and security features across their PC, devices and the Web. Windows Live will primarily be delivered free to users and supported by advertising, but subscription and transaction-based services also will be available.
Office Live is a new set of Internet-based services for growing and managing a business online. The initial Office Live offerings are targeted at the approximately 28 million small businesses worldwide that have fewer than 10 employees. These services can be used independently but also integrate with Microsoft Office programs. Office Live Basics helps a small business establish an online Internet presence including a domain name, a Web site with 30 MB of storage and five Web e-mail accounts at no charge through an advertising-supported model. Office Live also provides a set of subscription-based services with more than 20 business applications to help automate daily business tasks.
In the EDA world there was a switch away from perpetual licenses to time based licenses (TBL). This had a significant impact on EDA vendors because revenue for perpetual licenses was recognized as the time of purchase whereas revenue for TBLs was recognized ratably, i.e. over the time period of the license. This is true regardless of when the customers actually pay for the licenses. Since this shift occurred over a relatively short time, EDA vendors saw a significant drop in their recognized revenue compared to prior years. Synopsys in reporting its revenue for its fiscal 2005 just ended stated that lower revenue in fiscal 2005 reflects the company's shift to an almost fully ratable
license model initiated in the fourth quarter of fiscal 2004. TBL does, however, have an advantage of making future revenue more predictable and more even.
There have been attempts in the EDA industry to provide products over the Internet. In 1998 John Cooper, the co-founder of pc-board and IC design-router company Cooper & Chyan Technology, started EDAconnect.com, Inc. This firm has its EDAstore concept where firms could rent third-party vendors' tools on a per-month basis. Customers license and download tools from the Web site and run them locally on their own PCs or workstations.
Another example in the EDA world is E*ECAD. The firm has acquired the exclusive pay-per-use distribution rights to the range of ECAD tools developed by numerous vendor partners, including Aldec, Silicon Metrics, Silvaco and others. Pay-per-use application usage is tracked and charges are levied against a user's E*ECAD account as they are incurred. Monthly, Yearly and Perpetual Subscription licensing models are created to provide a full spectrum of licensing models for various customer scenarios. The Rent-to-Own program enables users to apply a portion of their Pay-Per-Use expenditures toward a perpetual license. Customers establish a running account, pre-paying for E*ECAD services. E*ECAD
was founded by Dr. Ivan Pesic who was also the founder of Silvaco International.
Another example is Barcelona Design. The company formed in the late nineties claimed breakthrough analog synthesis technology, and pioneered a Web-based model through which designers would access the technology on a pay-per-use basis. Customers would license Barcelona's intellectual property along with its synthesis tool, then use the tool to optimize circuits for a specific process. The company which had raised over $40 million in financing shut down in March of this year.
Larger EDA companies have also flirted with this type of offering, for example DesignSphere Access from Synopsys and Avanti.
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-- Jack Horgan, EDACafe.com Contributing Editor.
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