We know a couple of ways software is sold and there exist many strange names for the business models being utilized-SAAS. On-Demand, ASP, Licensing, Free(revenue is advertising based or on other services provided for the free software(Opensource-Redhat) etc. I’m servicing the ISV(Independent software vendor) market and have come across a variety of ways the ISV’s make their business model while providing their application to their clients(B2B, B2C).
Came across an interesting study from Wharton(you can download the copy from my esnips account here) Experts at Wharton say the January 30 launch of the consumer versions of Microsoft’s flagship software may be among the last of its kind — a product sold for a flat fee in a shrink-wrapped box. Indeed, many wonder if the software business model that has made Microsoft so dominant for the last 20 years may begin to fade in the decade to come as new software business models — from open source to advertising supported — gain increasing traction. .
So what are the other business models and what should Microsoft be choosing??
All of these models pose unique threats to Microsoft, although that is hardly news to CEO Steve Ballmer, who clearly sees the challenges ahead. At a Wharton Leadership Lecture this past December, Ballmer noted that the two biggest competitive threats to Microsoft are open source software and advertising supported applications. "Right now, the emblem of the first one is Linux and the emblem of the second one is Google. But it’s not the companies, it’s the phenomena" that present the greatest challenge to Microsoft, said Ballmer.
Upside of conventional software licensing
"Licensing has the benefit of stability and predictability: It’s a lucrative annuity if you manage it the way Microsoft has with Windows and Office. On the other hand, everything depends on convincing the customer to buy and then upgrade the product. In between those events, you get little or no revenue."
But with Microsoft’s licensing and distribution model it typically means rolling up features into one all-you-can-eat software product, while online rivals and open source applications can evolve more quickly. Another challenge facing Microsoft is that it may become increasingly difficult to convince customers to upgrade, especially if its new features don’t leapfrog advances provided by its competitors.
For example, Microsoft included a new desktop search feature in Vista, but Google beat it to the punch with its freely-downloadable Google Desktop Search.
What’s this HYBRID model???
Ok, there is the Ad-revenue based delivery model-Google has been rocking here and it is going to be very tough for the followers to beat the First movers advantage here.
Ad supported models are great if
(a) the ad dollars are there, and
(b), you can effectively broker between advertisers and customers,"
"For Google, this is a financial gold mine, but for many startups during the dot-com bubble, it was a recipe for disaster."
"Not every type of ad supported software will work. I can’t see a Wall Street analyst using a spreadsheet and then having an ad pop up."
What about Opensource???
To date, Microsoft’s strategy to counter open source has been to add more features to Windows to convince customers to stay. "Microsoft seems to believe that open source won’t provide the same level of quality, judging by Ballmer’s comments. But if the quality and performance of Windows and open source options are the same, Microsoft is at a disadvantage: "The biggest threat to Microsoft from Linux comes if the functionality ends up being the same,".You can’t compete with free.
In the end, as per the experts from Wharton, Microsoft is likely to adopt bits and pieces from many software models as it creates future versions of Windows and Office. They think that we will see most end-user applications divided between those supported through ancillary revenues — with advertising being the biggest chunk of that — and those bundled into a monthly fee with other services," For businesses, we’ll continue to see service-based models involving open source or free software combined with hardware, hosting and customization."