a better software business model

In my previous blog, innovation as the enemy of maturity, I describe some organizational and technical patterns that can help to empower innovation, as a software development firm grows. Removing internal impediments to innovation does not alleviate the commercial impediments.

Commercial off the shelf (COTS) software aims to provide generalized capabilities, in order to be attractive to a broad market. Enterprise applications are sensitive to business processes and business policies, which are highly specialized to each organization. One size does not fit all organizations. Each deployment will have its own idiosyncrasies. Some will demand features that are not generally useful to others. Others will demand customizations that are exclusive, not made available to the general market. The former pollutes an application, so that each deployment utilizes a shrinking subset of the features, while having to endure the growing footprint of unwanted baggage. The latter burdens the software with the growing complexity of a diverse set of customizations. Both are symptoms of a chronic bloat.

COTS software is normally structured so that there is a license fee to purchase an application for a particular use, followed by a recurring annual maintenance fee for support and bug fixes. The customizations often associated with enterprise software incur additional fees for professional services. This business model influences the software in the following ways.

  1. New features are constrained by the software vendor’s release schedule, which is usually on a 6-18 month cycle;
  2. Feature prioritization is weighted by the general market demand;
  3. Development is limited by the resources provided by the vendor; and
  4. Design decisions are dictated by the software vendor.

The COTS software business is modeled to maximize the software vendor’s revenue by seeking out the highest value subset of generalized features that are widely in demand by the greatest number of customers. By attempting to satisfy a few needs for all customers, no single customer can be wholly satisfied. Usually a generalized solution to a problem with many specialized variations can only partially solve the problem for any particular circumstance.

Enterprise software requires a business model that can adequately satisfy the demand for specialized solutions to specialized problems, while leveraging generalized solutions to generalized problems. A customer with a need for features to be developed according to a schedule should be able to fund and resource that development without being constrained by a single source and the lack of design authority.

Customers can be better served by a business model, where an annual fee is paid for a subscription to the software source code, development infrastructure, customer support, and community resources. The market for innovative designs expands to include contributors, who are much more familiar with the problem space (the user community). Competition helps to seek out the best solution, and it benefits the whole community. Each customer selectively builds the application to include only the desired features with their specialized extensions and customizations on their own schedule. Enterprise customers tend to contract professional services to implement extensions and customizations. This community source model empowers consultants, and attracts systems integrators and channel partners to improve sales instead of compete. A subscription based community source model is good for customers and good for the software vendor.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.