Software Business Models
Posted on August 27, 2004
Filed Under Software Eng, Computing, FLOSS |
For a long time, I have said that the software business model of boxed merchandise is faulty based on the nature of software. Many companies without a monopoly in its market have struggled or disappeared because they continued to use this model. The monopolist has enough market control to maintain sustainable profits as the industry is in transition to a model of subscription based software sales.
This is because software is more of a service than a tangible good. The development model of software reflects this, with the maintenance stage lasting longer than the all other stages combined. So the software product continues to evolve and improve after it is sold of the shelf. But in the product based model, the revenue is generated upfront, but costs continue for a long time to come. What if your product goes out of favour and its sales decline? Then your sustainable revenue stream is gone! Exhibit A: Corel Corp. Exhibit B: Netscape. … the list goes on and on ….
The software as a service model is more complex than your typical service industry, so many have a difficultly understanding how it will generate cash flow. I’ll work on a paper to discuss these issues in more depth, but to get the conversation started take a look at this piece from Simon Phipps, of Sun, here.
Sun is one of the few big companies that have embraced the service based model of software openly and across its product lines. IBM is starting to move this way, and Microsoft is also quietly looking to make its office suite a web based app that you pay a subscription for.
Discuss here or on the SEUG mailing list.
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