The Hidden Costs of Homegrown Software Monetization Systems

With talented in-house engineering teams, technology companies often choose to develop homegrown software for licensing and entitlement management, believing this approach will save money and maintain control.

However, the DIY decision can have far-reaching consequences that affect not only your bottom line but also your business's overall growth and profitability.

Monetization experts Ravi Trivedi, Sheela Bilderback, and Daniel Mboweni recently joined me to discuss the hidden costs of homegrown software and offer practical advice on successful product monetization.

You can watch the conversation in full, or read the detailed summary below.

Homegrown Software vs. Market Solutions

Maintaining a homegrown software monetization system can be more costly than initially anticipated. Several hidden costs can erode your profitability and hinder business growth, such as:

• Maintenance and Scalability Issues: Homegrown software typically requires significant maintenance efforts, diverting resources away from core product development. As your business grows, these systems may struggle to scale, leading to performance issues and potential downtime. According to SimCorp, the initial cost of building a homegrown system is only 20% of the lifetime cost of maintenance, making it a false economy.
• Compliance Risks: In-house systems may not be fully compliant with evolving regulatory requirements, exposing your company to potential legal and financial risks, which commercial solutions should safeguard against.
• Revenue Leakage: Without robust entitlement management software, homegrown systems can lead to unnoticed revenue leaks through piracy, unauthorized usage, or inefficient billing processes.

Common Pitfalls of In-House Monetization

Several common pitfalls can lead to inefficiencies, security risks, and lost revenue when using homegrown software monetization technology, including:

• Inadequate Entitlement Management: Without sophisticated entitlement management, you may struggle to effectively control and manage user access to your software, leading to potential revenue loss.
• Limited Analytics and Insights: Homegrown systems often lack advanced monetization analytics capabilities, making it challenging to gain valuable insights into customer behavior and usage patterns.
• Security Vulnerabilities: In-house solutions may not receive regular security updates or patches, leaving them vulnerable to cyber attacks.

Real-World Insights

Pam Vance from SimCorp emphasizes the importance of focusing on core competencies: "Our engineering team specializes in quantitative finance, and it would be a very poor use of their time to work on licensing instead of the features our clients value." This highlights the potential distraction that homegrown monetization systems can cause.

Read the Case Study: SimCorp Grows ARR with Capacity-Based Subscriptions

Similarly, Andrew Werner from a.i. solutions states: "When you factor in all the testing and configuration requirements for licensing, it wouldn't make sense for two engineers to spend two years building a system that would likely run into issues and not play nicely in every environment. Instead, Revenera's secure platform allows us to focus on developing the capabilities that add value and ensure better outcomes for our customers."

Learn More: a.i. solutions Launch Flexible Licensing to Accelerate Growth

Making an Informed Decision: Build vs. Buy

When deciding whether to build or buy software monetization systems, you should review these key factors:

• Total Cost of Ownership: Calculate the total cost of ownership for both building and maintaining an in-house solution versus purchasing an enterprise-grade platform.
• Core Competencies: Assess whether software monetization is a core competency for your business or if it's a distraction that could derail your roadmap. Delays stunt business growth and reducing time-to-market should always be central to your thinking.
• Scalability and Flexibility: Evaluate the scalability and flexibility of both options to ensure they align with your business goals.

Future-Proofing Your Monetization Strategy

To future-proof your software monetization strategy while reducing costs, consider the following:

• Adopt Commercial Solutions: Enterprise-grade monetization platforms offer advanced features, scalability, and compliance with industry standards, reducing the risks associated with homegrown software - meaning you gain reliability, agility, and peace of mind while eliminating the burden of internal development.
• Real-World Case Studies: Companies that have transitioned from homegrown software to enterprise-grade monetization solutions have seen significant improvements in revenue growth, customer satisfaction, and operational efficiency.

Forrester recently conducted a Total Economic Impact™ Study of Revenera, which found a 426% ROI over three years with an initial payback period of less than six months.

If you're currently weighing up the build vs. buy software decision, the TEI Study should be essential reading as it outlines how commercial solutions can help you grow recurring revenue, with insights from four global leaders who transitioned from homegrown software to Revenera's monetization platform.

For further advice, please contact the software monetization team to book a meeting and learn more about how Revenera can help you grow recurring revenue, streamline operations, and reduce risk.