Jeff Nolan writes:
Anybody who is in the enterprise software business knows that the thing we all lust for is not license revenue, it’s the maintenance base. In fact, mature software companies will almost always generate more revenue from maintenance than they will from new license sales, because an enterprise license contract is a form of annuity.
This is partly why I’m non-plussed about the debate on hosting and subscription business models. Here’s why, if the monthly subscription fee is just a way to break up the license fee into smaller chunks and bundle them with a term maintenance fee, then why do I care WTF you call it? Apparently many pundits on hosting v. licensing are unaware that enterprise customers are accustomed to paying a recurring fee to their enterprise software vendors. In a way, locking in a customer to a 3 year deal, as an example, is advantageous because as it is now most vendors have to sell their customers annually on the maintenance component, which can run as much as 20% of the license amount. Hosting, well that’s just another way to deliver software, it doesn’t have a meaningful impact on how you price it, or how your customers pay you for it.
…there’s nothing that would convince me that a vendor shouldn’t consider providing support services for competing products.