A concept came to me today as I was driving, that is probably a well documented business concept (or dismissed as nonsense long ago), but it was new to me. I hope that doesn't reveal any lack of business acumen :-).
The concept is the correlation between a software company's focus and how it licenses its software.
Let's look at one software licensing scenario. Say that you charge $5,000 for your software license and then charge $1,000 each year for upgrades and maintenance. In order to grow and increase revenue, you need to concentrate your efforts on new customers. The maintenance revenue is important to you, but new sales are going to be your main focus as one new customer provides the same revenue as five existing customers. You tend to take the existing customers for granted, because losing one or two isn't that financially significant.
In a second software licensing scenario, let's say that you charge $2,000 each year for the license, upgrades and maintenance, but there is no up-front cost. In order for you to grow and increase revenue, you need to concentrate on maintaining your existing customers as well as adding new ones.
I believe that moving to the second scenario will change the way your software company works. Your focus will be on quality control and providing complete functionality that meets the needs of your customers, as opposed to meeting the needs of the sales demo or request for proposal currently sitting on your desk. I believe that the second scenario drives more of a long-term focus than a short-term focus. Your decisions will be based more on building a stable of loyal customers than on meeting your latest sales quotas. Functionality will be more attuned with the real world and will take less iterations to become usable. The net result is a better product and that will lead to long-term success and easier sales efforts. You also make it attractive for potential customers to try your software. "The proof will be in the pudding", not in the packaging.
Does anyone have any thoughts? This is basically the model that most Application Service Providers use, but I don't see it applied to Industrial Software products.
The concept is the correlation between a software company's focus and how it licenses its software.
Let's look at one software licensing scenario. Say that you charge $5,000 for your software license and then charge $1,000 each year for upgrades and maintenance. In order to grow and increase revenue, you need to concentrate your efforts on new customers. The maintenance revenue is important to you, but new sales are going to be your main focus as one new customer provides the same revenue as five existing customers. You tend to take the existing customers for granted, because losing one or two isn't that financially significant.
In a second software licensing scenario, let's say that you charge $2,000 each year for the license, upgrades and maintenance, but there is no up-front cost. In order for you to grow and increase revenue, you need to concentrate on maintaining your existing customers as well as adding new ones.
I believe that moving to the second scenario will change the way your software company works. Your focus will be on quality control and providing complete functionality that meets the needs of your customers, as opposed to meeting the needs of the sales demo or request for proposal currently sitting on your desk. I believe that the second scenario drives more of a long-term focus than a short-term focus. Your decisions will be based more on building a stable of loyal customers than on meeting your latest sales quotas. Functionality will be more attuned with the real world and will take less iterations to become usable. The net result is a better product and that will lead to long-term success and easier sales efforts. You also make it attractive for potential customers to try your software. "The proof will be in the pudding", not in the packaging.
Does anyone have any thoughts? This is basically the model that most Application Service Providers use, but I don't see it applied to Industrial Software products.
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