For a New Software Distribution Model
Tuesday, January 17th 2006 | Ismael Ghalimi
As Martin LaMonica from CNET wrote recently, enterprise software companies are starting to feel the pinch when selling to corporate IT buyers. Commoditization through Open Source on one end, consolidation of the industry around a handful of behemoth players on the other, make it increasingly difficult for enterprise software vendors to compete in an effective manner. This article makes a case for a new software distribution model that will change the rules of the game.
Independent software vendors, and among them start-up companies, have a lot to offer to customers. They innovate faster, they do not encumber customers with their own legacy, and they can provide cross-platform offerings without alienating their own salesforce. But most importantly, they are open to new business models that better address the needs of once-burned-twice-shy customers.
Among such models, hybrid business models that blend open source and commercial software allows customer to use the open source software without having to pay for it initially, then upgrade to commercial editions once they are convinced of the value they can get out of it and want more features or services. This model works, and I strongly believe that three to five years down the road, most software will be sold that way, as an appliance, or as a service.
What such a model does not solve is the fact that most independent software vendors are small players, for which crossing the chasm beyond $20M of yearly revenues has become increasingly difficult. Lower revenues mean smaller engineering teams to develop increasingly complex products. In the enterprise infrastructure software space, the larger players such as IBM, Oracle or SAP can put thousands of software engineers to the job of developing the next platform for the enterprise. Smaller companies cannot, and no matter how faster they move or how smarter they think they work, they remain at a disadvantage, and the situation will only get worse over time. This is why they have to team up together if they want to survive.
Today, Intalio made a fairly low-profile announcement introducing a partnership with a company called Celequest, a leader in the emerging Business Activity Monitoring (BAM) space. On the surface, it might look like any other OEM agreement that largely goes unnoticed and quickly turns into some Barney deal—an ‘I love you, you leave me’ kind of a story. In reality, this announcement might very well mark the beginning of a new era for enterprise software, the way it is distributed to customers, and the way customers will pay for the value they get out of it.
If you read between the lines of the press release, you will learn that Intalio embedded the Celequest BAM suite into the Intalio|BPMS Community Edition. And if you check on the Intalio website, you will see that this product is free, as in there is no license cost, and maintenance services are just optional. So what is the deal? Well, as long as you use Celequest’s product in combination with Intalio’s BPMS on top of the Apache Geronimo application server and the MySQL database, you do not have to pay for a license. And this is not limited to development purposes. You can go into production with it, as long as Geronimo and MySQL are good enough for you. If you want support services for it, Intalio and Celequest will gladly provide them to you. And if you want to run on a different application server or database, you can as easily upgrade to the enterprise edition, for a price that effectively competes with most other offerings currently available on the market.
To make a long story short: go get the software for free, use it as much as you want, and if you need more along the way, give us a call and we will sell you an upgrade, but only when you’ll have convinced yourself that there is significant value out there for you. In other words, we won’t try to sell the software to you, you will just want to buy it from us. For an enterprise software start-ups, this little nuance translates into million dollars worth of savings by not having to deploy a direct salesforce on the field.
Now, the reason why this announcement is so meaningful is that it’s only the first one in a series of five to six that will be rolled out in the coming weeks. To the mix, we will add an enterprise service bus, a meta-data repository, a business rule engine, an AJAX-powered XForms presentation layer, a collection of connectors to packaged application, and a content management system, all under similar licensing terms. We will work with customers and partners to integrate all the pieces in the way that makes the most sense to them and as a result, we will have a plartform that even IBM, Oracle and SAP can only dream of matching on their own. In fact, we even expect them to license some of our pieces as well.
This federated model for building the next enterprise platform is our answer to the commoditization and consolidation processes that are at play in our industry today. We believe that customers will benefit from it because it will give them alternative options to an IBM/Oracle/SAP triopoly, and as I learned from one of my former coaches, having multiple options is one’s ultimate measure of success. We look forward to working with you on it!
Entry filed under: BPM 2.0, Consolidation, Open Source, SaaS
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I’d like to hear more about what you describe as a “federated” model. Why use the word “federated’?
Also, are you suggesting that your pricing model is qualitatively different from “the big guys?”
Is it really? They’ve always been able to look at — and price to — a total revenue stream that consists of initial license fees, customization services, and ongoing maintenance and support. Given that the big guys have always been able to discount any of these components to help close the sale, how is what your are doing any different from the customer’s point of view?
Dennis,
Fair objection. List prices are often discounted indeed. Nevertheless, now matter how big the discount ends up being, customers willing to use in a production environment BPMS software provided by IBM, Oracle and SAP need to purchase a license upfront. Our model is different in the sense that customers can go into production without having to purchase a license upfront, as long as they are using Geronimo and MySQL. Once they feel that they need to upgrade to a more robust database, or deploy on top of the application server they picked as corporate standard, all they have to do is purchase a license, enter a license key, move one EAR file and one WAR file, and they are up and running again, this time on their deployment platform of choice. This incremental adoption model is explained in more details on our website and really is what makes us different.
Regarding your question on our federated model, what we mean by ‘federated’ is that multiple vendors such as Celequest and Intalio team up to deliver a complete solution. More details on this partnership will be unveiled as we announce additional partners over the next few weeks.
[…] The new distribution model we adopted two months ago is starting to bear fruits: we generated more qualified leads in the last six weeks than we did in the past six years. Following the successful setup of our offshore engineering group in Ukraine, we decided to open telesales offices in India and Ireland in order to keep up with increasing demand for our software and services. We are also extending our support capabilities in India and are currently looking for technical partners in Europe in order to provide 24/7 support on a worldwide basis. […]
Interesting, but still challenging. Maybe as much as to sell regular software licenses. While you don’t need a direct sales force — and it saves a lot of money! — you still need to promote the company in some way. Influencers — like the big system integrators — must be willing to recommend your solutions to customers. The simple fact that the software is open-source and free is not enough to motivate customers to try it — unless you’re already seen as a strong player — which seems to be the case for Intalio. After all, this model is a just another kind of “try-then-buy” offering, isn’t it? My bet is that the key success factor here is the ability to manage the relationship with strategic partners like the big consulting companies, system integrators and other software vendors.
Clayton,
I agree with you. This model very much relies on the development of strong channels and does not remove the need for marketing. The only thing that changes is that customers will see less sales representatives driving expensive cars, but I’m not sure that they’ll complain much about it.
Ismael,
Still around the “distribution model” subject… Several companies are creating “Shared Services” groups and outsourcing complete business processes, instead of just IT infrastratucture or discrete pieces of processes. Basically, this is driven by the never-ending search for cost savings, productivity improvements and synergy development between disparate business units, functional-driven departments, etc. A real shift in distribution model could be to make Intalio products the enabling tools for such initiatives, forging “shared revenues/savings” agreements with customers. That could create an extreme win-win situation, where Intalio could incur less sales/marketing costs, develop increased focus on customer success, and eventually generate better results as a corporation.
Clayton,
I like the general idea, but developing a generic pricing model for it might prove to be challenging, especially when selling a generic piece of infrastructure software as we do. I tend to believe that such a model might be better suited to companies that are using our software in order to develop business solutions that are sold to business users directly.
In this discussion thread I see two mixed concepts: the business model and the sales strategy. Whatever your model is — including your licensing schema, channel strategy, services portfolio, etc. — you’ll need to build relationships across the ecosystem, negotiate with real world people, in order to build trust, which is finally what closes deals, not the technology by itself.
People buy, not companies, and this is based on the sense that you’ll be there on the long run. A small company can hardly compete against a top notch player, unless that company uses the personalized approach that is hard to get with account managers from SAP, Oracle, etc. A small company can be quicker and closer to the decision making process.
This has been a silver bullet I used very often in my work experience with small sized companies. So please guys, don’t speak like “avoiding the sales people” as an advantage, whether to scale up a company or to create competitive advantages.
Edgardo,
Very insightful comments. I must agree.
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