Software Toolkit for Generalists (pt 2)

Business Models

This has been surprisingly hard to publish because at one point I had written almost 15 pages worth of content which became tiresome to read. Trying to strike the balance between things that are current and matter vs. too much detail. I hope this is helpful.

The Old Revenue Model

Back in the old days when dinosaurs roamed the earth and Wall Street carried Blackberries, enterprise software was largely very uniform.

Company A charges company B a perpetual license to its software. What this means is the licensee paid a 1x fee to use the software forever (not the ownership the IP). The license is priced on some logical metric that aligned to scope (# of seats, # of devices, etc.) Then in order to receive updates, patches and bug fixes, Company A will change company B a support and maintenance fee usually equal to 20-22% of the value of license every year. In consumer software, think about the old Microsoft office disk - you bought it in a store and you owned it. In enterprise setting, what typically happened was the vendor established a very high list price for the software, then in sales cycles, licenses usually got discounted up to 80% to get to a street value. Then it made even more money by implementing the software - using either its own consultants (or 3rd party consultants known as system integrator like Accenture) to help customers configure, set up and get the system up and running. Often, the price of this service was can be 3x the amount of the license. So in numbers, the revenue model usually looked like this: