While at a recent software-industry event, I heard lots of talk about the need for new business models among software companies. Thanks to the Internet, the economy, open-source software, offshore outsourcing, and customer pressure, the software industry is in need of transformation.
Romesh Wadhwani, managing partner at Symphony Technology Group, points out three mistakes software companies make: (1) They believe customers love them; (2) they think they're in the software-products business; (3) they're convinced they have successful business models. All wrong, he says. First, software companies need to love their customers and deliver more value to them. Second, they have to accept they're really in the business-process solutions business.
And third, they must reinvent their business models.
Adapting to new pricing models is one way to start--and a place where customers have significant leverage these days. This week, we start a new series that will examine many of the new models--all revealing a significant change (see story, Power Shift). Look at Mercury Interactive, a fast-growing developer of business-technology-optimization products. Four years ago, all of its money came from perpetual license deals. Today, half comes from subscription licenses.
Recently, I met with integration vendor Grand Central Communications. One of its customers, Thomson Financial, pays only for the amount of data that runs over its network. These on-demand models show a real change in the way customers buy software today.
In the end, it's all about giving customers choices in the way they buy, use, maintain, and upgrade software. That flexibility will help define the winners and losers in the software business over the next few years.
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