In my view, we are observing the major disruption of enterprise software business models ever. Since yesterday’s post FREE and COOL trends in CAD/PLM I had chance to have quite many discussions with my colleagues about possible new innovative business models in product lifecycle management. I have to say, that COOL option seems something that considered as simpler one. However, FREE option is something that raising many interesting questions and opinions. In my view, the most powerful business models need to be dumb simple. Let think about that. The PLM business fundamental, as a typical enterprise business today is presented by ability to sell licenses, maintenance and services.
Licenses. These are the basics of enterprise software business – expensive licenses and focus on the business value proposition. This model worked well for many years. This is still the most used business model in the enterprises.
Maintenance. In my view, this is the first source of revenues for enterprise software vendors in the bad economy. It is obviously depending on how your customers hold back against recession, but maintenance revenues is definite pain relief for many vendors these days.
Services. The ultimate way to customize your product and support all customer needs. The relative weight of services in each industry shows, in my view, the maturity of products and adoption level for mainstream deployment.
Before talking about the possible options, I want to bring some very interesting article in UK’s Independent. You can see it here. Oracle is suing small rival providing services for Oracle customers. Without going in details, my hunch is that services become a more important component of enterprise business. Similar to what happens with IBM when they were enforced by Microsoft to re-build their business around services, we can see similar signals in the current enterprise business outfits.
So, what are possible directions in the future business models I can see?
Subscription Models
In my view, the most straightforward. You are not paying for licenses, but pay for subscriptions. The obvious advantages are to simplify user adoption and decrease upfront cost for customers. On the dark side of this model is customer’s feeling to “pay for bug fixing”, which moves customer satisfaction level down. This model is actively discovered by providers of Open Source and Free Software providers.
Reverse Models
This is something that can really improve the subscription model. Let’s make subscription model to work in reverse. In this case, customer will pay a subscription fee if software works. What will happen in case of problems? Yes, customer stops paying. Does it sound weird? Maybe, but I found similar models are working in different industries like, for example, in medical services in China.
Advertising Models
This is the most fascinating one. I think, relationships between advertising and enterprise need to be researched from the beginning in 2000s. There are several factors that will drive the future change in this space: cloud applications, subscriptions and online business. My hunch is that advertising money can be turned toward payment for enterprise software vendors and PLM’s unique potential, here is in the ability to manage complete product information including interaction with customers and suppliers during the whole product lifecycle. Yes, to prevent some comments – it may not work for all industries. However, industries like consumer products, telecommunications, high-tech, apparel has a huge potential to use it in the future.
So, what is my conclusion today? We are going to see continues disruption of enterprise software business soon. These are my thoughts. Does it make sense to you? I’m looking forward to our future discussion.
Best, Oleg
