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Subscription-based Licensing Model

This topic must have been discussed a lot more before.

This guy says that subscription-based licensing model won't work for small ISVs although Microsoft and Sun, etc. will probably move to it:

http://www.startupskills.com/archives/000102.html

The original article he was refering to can be found here:

http://www.informationweek.com/story/showArticle.jhtml?articleID=18401482

Green Pajamas
Saturday, July 10, 2004

It's really just a way to force customers to buy a support contract whether they want it or not. ISVs love support contracts because they provide the revenue stream the article mentions, and they lock the customer into taking upgrades on schedule instead of looking at other vendors; but they're not appropriate for all products (do you really need a support contract for your word processor?).

Anony Coward
Saturday, July 10, 2004

Subscription-based licensing does work for ISV's also, but it sure helps to be in a business where _external conditions_ change regularly, making it easier for customers to understand the point of providing a regular cash stream to the editor.

It's much tougher if said external conditions don't change too often, if ever, and the software has reached the point where 90% of useful features have been added.
Very few are the customers who understand that using deadware is very risky (no money -> editor drops development -> if a major problem occurs due eg. to a low-level change in the new version of Windows, too bad.)

Fred
Saturday, July 10, 2004

Like financial data?  That's exactly how I pay my bills. 

christopher (baus.net)
Saturday, July 10, 2004

Microsoft is basically blackmailing customers with their current subscription scheme where if you don't keep paying your fees, you'll not be allowed to upgrade and will have to pay full price to do so.

You can't tell me this is a program that customers have asked for - the only reason they have gotten away with it so far is because they are abusing their monopoly position.

Now it turns out that MS has gotten fat and happy with the free billions for the nothing they are delivering -- with cash in hand in advance of delivering a product, it seems so pointless for MS to actually deliver a product. This model provides no financial incentive to deliver value. Like a goverment, the money comes in for free via a tax and whatever they do doesn't affect revenue, so nothing is done. Obviously if Microsoft had to deliver value in order to get paid, their revenues would plumet to nothing.

Unfortunately for them, the universality of subscription customers have become very unhappy with this model which provides no financial incentive to deliver value to them. As a monopoly, it is like they are dealing with a government but, and here is the key thing - everyone hates being shafted by a monopoly. Even if the monopoly has the best producs, people hate being screwed and they will never forget the person who did it to them. They are constantly looking for an out.

MS's current program has pissed off the majority of businesses. Most of them are now looking for a way out. Most are looking at Linux but that's giving them worse headaches because Linux is such a pain in the ass and costs big money as well. There basically is no solution right now, but to the guy who figures out how to make these people's lives easier, there's a few billion easy money to be made.

Dennis Atkins
Saturday, July 10, 2004

Of course there IS OS X, but american businesses consider a BSD Unix with a Mach kernel, an easy to use UI, the world's fastest PC hardware and a lower price that not only runs all unix software but runs Office as well to be a 'toy' for 'home users' and not the serious business powerhouse that their $499 Dells represent.

Dennis Atkins
Saturday, July 10, 2004

"Of course there IS OS X"

No there isn't (not for business).  With Apple, you get exactly ONE choice as to which company you buy hardware from. Furthermore, if you want to switch to Linux or another OS later, you also have fewer choices.

Besides, Macs are for girls, everyone knows that :)

"an easy to use UI"

Obviously, not everyone feels that way.  The one thing that I hate about the Mac OS is that all your menus are always at the top of the screen, instead of on the application window. Also, I think that it's slow compared to Windows. But, there is no way to be objective about this topic.

"the world's fastest PC hardware"

Actually, Apple was forced to stop saying that (since it isn't true).

"and a lower price"

How can you say that the Mac has a lower price AND mention a $499 Dell in the same sentence?!

"that not only runs all unix software but runs Office"

You can also run Cygwin or VMWare/Virtual PC with a Linux guest OS on Windows. Besides, there aren't a lot of desktop applications for *nix that you can't find a better version of for Windows, so you're left with *nix Server applications, in which case you'll probably want a seperate box anyway.

"as well to be a 'toy' for 'home users'"

Barely.  There are all of about 15 games released for the Mac each year compared to the 1,500 released for Windows each year.

Wayne
Saturday, July 10, 2004

Dennis -- give me .NET and the related tools and IDE on Mac OS X and I'll put my PC on ebay tomorrow :)  And I don't mean Mono or some other Rotor port...it'd have to be a fully MS-supported write-once-run-anywhere solution.  And of course we all know how well that dream worked out for Java on the desktop...

As for subscription-based licensing, I think the model actually works *better* for small ISV's than big companies.  Specifically, this works well for selling web apps or smart clients to smaller customers where the backend systems belong to the ISV.  The client doesn't have to shell out a lot of cash up front for hardware, they don't have to manage any of it, and upgrades can be made continuously instead of in lengthy cycles.  Everybody wins.

But when someone like MS starts trying to get you to buy a subscription to Windows and Office, well...the above poster was correct in that there's simply no additional value provided.

Joe
Saturday, July 10, 2004

"No there isn't (not for business)."

Well this is exactly the sort of pigheaded ignorance that is why I started by saying that OS X is not a choice for any business. It may be better, it may by cheaper, it may be more stable but who the f*ck cares, it's not microsoft dammit and that's the way we've always done things around here.

That's why I don't even bother recommending OS X to clients. I just do everything in NET like hey want cause that's the way its done and there is no point in trying to convince the client otherwise. I am not there to save them money. I am not there to provide them with a stable solution with fewer security risks. I am there to do what they want, cash the check and move on.

Dennis Atkins
Saturday, July 10, 2004

> How can you say that the Mac has a lower price AND mention a $499 Dell in the same sentence?!

There's this new thing called "total cost of ownership." Look into it!

But let's set that aside for the moment. On the raw hardware costs, Mac does not compete at the bottom of the barrel of prices, true. But for medium to high end machines, Mac is the same or less expensive for what you get.

Dennis Atkins
Saturday, July 10, 2004

Joe, have you even tried XCode with Cocoa and Objective C? Definitely more productive than net and I'd put the money on the competant Cocoa team in a head off any day of the week.

But none of that matters. All that matters is that no one ever got fired for buying microsoft. No one. Ever.

Dennis Atkins
Saturday, July 10, 2004

"Everybody wins."

Tell that to the company who just lost all their customer data when their web based software service silently folded up one day after being unprofitable for three years.

But dontja worry - web apps are the wave of the future along with software subscriptions, as you pointed out. It's all about lockin and having a captive audience and the captives don't wind a bit I swear to you!

Dennis Atkins
Saturday, July 10, 2004

"The client doesn't have to shell out a lot of cash up front for hardware"

You mean they can't afford $299 for a fully configured Linux server?

Dennis Atkins
Saturday, July 10, 2004

Wow. Not only is Dennis an "evangelist" it sounds like he wants to start his own cult..... er, church.

www.MarkTAW.com
Saturday, July 10, 2004

> Joe, have you even tried XCode with Cocoa and
> Objective C? Definitely more productive than net and I'd
> put the money on the competant Cocoa team in a head
> off any day of the week.
>
> But none of that matters. All that matters is that no one
> ever got fired for buying microsoft. No one. Ever.

Actually you missed the point.  Sure, I could go write apps for Mac OS X...but who is going to buy them?  It's a problem of market pull.  People write apps for Windows because it's ubiquitous.  People buy Windows because there are apps for it...

Joe
Saturday, July 10, 2004

> Tell that to the company who just lost all their customer
> data when their web based software service silently
> folded up one day after being unprofitable for three
> years.

Subscribers should *never* lose their data.  At any time, any of our customers can request a copy of their database, and take it somewhere else if they so choose.  They own their data, we just house it.  This makes the task of switching vendors pretty equivilant to what would occur in a non-subscription model.

Joe
Saturday, July 10, 2004

> "The client doesn't have to shell out a lot of cash up front
> for hardware"
>
> You mean they can't afford $299 for a fully configured
> Linux server?

Great...one server.  Now they need software to run on that server.  I'll even allow that they could choose entirely from open source solutions.  They still need people to manage it.  What about backups?  UPS systems?  Security?  Patches and upgrades?

And if they aren't comfortable with OSS, now we're talking Websphere/Weblogic/MS IIS, Oracle/SQL Server/Sybase, etc.  All that adds up quick, in addition to the management costs...

For small businesses with no formal IT department, these are monstrous headaches.

Joe
Saturday, July 10, 2004

Ha Joe! I gotcha arguing both sides of the debate for me!

Dennis Atkins
Saturday, July 10, 2004

I'm only arguing one side...that ISV's can provide value to small businesses via a subscription model.  I don't see how I've implied anything else...

If you mean in regards to Mac vs. The World, well, those costs are present on *any* platform.

Joe
Saturday, July 10, 2004

"They still need people to manage it.  What about backups?  UPS systems?  Security?  Patches and upgrades?"

See, you are right that these costs are totally unmanageable for a small business. That is specifically where OS X provides an advantage - running an Apache server under OS X can be as simple a matter as clicking on a single button. For those businesses that are doing a bit more than a shared host can handle and need a dedicated server, OS X is the best solution hands down.

However I don't recommend it because if you do so, the pinheads get their panties in a bunch and start sniveling and whining about how OS X unix is not a serious machine, or they complain that it is too expensive and buy PC hardware for the same cost, server software for big bucks, and pay a floatilla of PC nerds to babysit the damn thing with the perpetual temple of patches and security alerts.

For consultants, there is a shitload more money to be made by recommending Linux or PC over OS X. The last thing you want is a customer that doens't need your specialized services any more because it all "just works." Even custom coding takes far more hours and that means more billing income!  Because of these factors, a consultant would have to be a fool to recommend OS X and fortunately the rube lemmings with their businesses are all about brand and MS is the way to go, so I cash their checks most happily, smiling and laughing to the bank, just like you guys!

Dennis Atkins
Saturday, July 10, 2004

I don't think it's a big company vs. small ISV thing.  It's all about what sort of value you provide by maintaining a subscription-based model vs. outright purchasing.

With software packages such as antivirus, there is added value provided via the frequent virus database updates.  People are willing to pay for that.  Similarly, for some financial analysis software there is added value provided by a huge financial database that is maintained by the vendor and updated daily.

But what value is provided with a subscription to something like Microsoft Office?  Practically nada.  Subscriptions for that kind of software are only useful for idiotic corporations who prefer to spend $10 million per year perpetually instead of $20 million once every 5 years, because the $10 million fits easier into the current year's budget (even though it is much more expensive overall in the long run).

As far as big vs. small companies are concerned, it may just be that the big software companies are in a better position to have the staff and equipment to provide the value-added services that a sustainable subscription model would involve.

T. Norman
Saturday, July 10, 2004

"We lease the software back from the company we sold it to, thus bringing it in as a deductable line item monthly expense so we don't have to deal with the hassle of depreciation and the ensuing tax complexity."

Dennis Atkins
Saturday, July 10, 2004

> Subscribers should *never* lose their data.  At any time, any of our customers can request a copy of their database, and take it somewhere else if they so choose.  They own their data, we just house it.  This makes the task of switching vendors pretty equivilant to what would occur in a non-subscription model.

OK, Joe I bite at your bait.

First, your offer is very unusual among web services companies! Congratulations on the innovation.

Please clarify for me some details of how this works. Is there a fee for the physical backup service? How much is that fee? Obviously, my customers require daily backups of their critical information. Do you back up to DVD? To tape? What brand of tape? How do you ship the backup tape and how long do we wait before getting the tape? Is the tape insured? Perhaps you do not make the physical backups for us yourself. Maybe I have to come in to your facility. I can come in every day? Where are you located? Can I leave my backup machine on site and then just bring tapes? Is there a fee for being allowed to do so?

Dennis Atkins
Saturday, July 10, 2004

Feeling a little argumentative today Dennis?

Ronk!
Saturday, July 10, 2004

"Well this is exactly the sort of pigheaded ignorance that is why I started by saying that OS X is not a choice for any business. It may be better, blah, blah, blah ..."

Why is that pigheaded? I gave you a clear and concise reason as to why businesses do not choose OSX. I didn't make up that reason, but there IS a reason and that is lack of CHOICE in the supplier of hardware and software/OS that you can run on the hardware/OS.  It's a fact, jack.

"There's this new thing called "total cost of ownership." Look into it!"

Oh, I see. So what brings the TCO of the Mac down past Windows or Linux? (besides the tons of commodity priced Mac IT personell that are available (not)) Were you going to suggest that you don't need Mac IT people? Were you going to suggest that Windows or Linux are so much less stable than OSX that it will save you that much money? I don't think so...

Oh, wait! You can run MySQL and other Open Source software on the Mac...but you can do that on Linux or Windows too...gee that TCO is really coming down.

Wayne
Saturday, July 10, 2004

P.S. sorry for being snotty, but it's so easy to give in to the dark side ;)

Wayne
Saturday, July 10, 2004

>> Please clarify for me some details of how this works. Is there a fee for the physical backup service? How much is that fee? Obviously, my customers require daily backups of their critical information. Do you back up to DVD? To tape? What brand of tape? How do you ship the backup tape and how long do we wait before getting the tape? Is the tape insured? Perhaps you do not make the physical backups for us yourself. Maybe I have to come in to your facility. I can come in every day? Where are you located? Can I leave my backup machine on site and then just bring tapes? Is there a fee for being allowed to do so?  <<

My company is also an ASP, so I can answer some of these questions (maybe -- I'm a software developer, not a hardware person).

We do daily backups onto tape (DLT, I think -- but it might be LTO now, as some hardware upgrades were done recently), using the typical grandfather-father-son rotation scheme.  The tapes are stored off-site.  We also replicate from the data center to an alternate "hot" site, so data is always current (give or take a few minutes). 

As a consequence, restores can take a day or more, but it's worth it for the peace of mind of having the tapes be somewhere else.  One of the stories I've heard was that a few firms in One World Trade Center stored their backups in Two World Trade Center, and vice-versa.

If customers want a copy of their data (for analysis, business continuity, etc), we charge a fee for this service (but departing customers get it for free). We FedEx it to them on CD-ROM(s) using our published XML format.

One of the big advantages to an ASP is that customers get the benefits of a professionally run data center that they couldn't otherwise afford.  Of course, not all ASPs are alike, so a business wanting to sign up with one should do their due-dilligence and ask to take a tour of the office & datacenter.

example
Sunday, July 11, 2004

Dennis,

Apple isn't a business company. Where are their business offerings? How do you manage networks of Macs?
The OS X line is the first that actually has the potential to become a serioius platform, but I don't see Apple pushing in that direction. If they start now, it will take some time. Maybe 10 years?
Now for companies moving to Apple because they are looking for a way out of abusive behavior? Now that truly would be "one step forward two steps back".

Just me (Sir to you)
Monday, July 12, 2004

>Apple isn't a business company.

No?

> Where are their business offerings?

What do you mean where?

>How do you manage networks of Macs?

Didn't you once say you had a Mac down there in NZ? Surely you know that Macs have ethernet all set up and interfacing to an network is trivial whether it be Macs or PCs or even some computer half way across the world, on the network its all handled transparently. Network support on the Mac is first class. But you know this, you are just goading me to say it. Why not just say it yourself?

> The OS X line is the first that actually has the potential to become a serioius platform

Potential to become a serious platform? Unix with a BSD kernel? Let's instead talk about whether the fragile children's gametoy OS's such as XP have the potential to become a secious platform.

>, but I don't see Apple pushing in that direction.

Are you wearing a blindfold then. There's a whole world happening outside your cubicle man, look into it!

Dennis Atkins
Monday, July 12, 2004

>> Please clarify for me some details of how this works. Is there a fee for the physical backup service? How much is that fee? Obviously, my customers require daily backups of their critical information. Do you back up to DVD? To tape? What brand of tape? How do you ship the backup tape and how long do we wait before getting the tape? Is the tape insured? Perhaps you do not make the physical backups for us yourself. Maybe I have to come in to your facility. I can come in every day? Where are you located? Can I leave my backup machine on site and then just bring tapes? Is there a fee for being allowed to do so?  <<

The above poster laid out a pretty good scheme, but I'll add ours to it as well, without going into *too* much technical detail, as I'm not the guy in charge of backups.

We handle daily backups as part of our subscription fee.  They are tape-based, but it's beyond me as to exactly what the tapes are.  Rotation, off-site copies, yada yada.  If a customer wants their data, they will be sent MS-SQL .mdf and .ldf files free of charge which they can then mount elsewhere (they are also aware before they sign up w/ us that we use MS SQL server).  If they need another format, that would also be possible, though there may be a fee for the export.  If they need them *now*, we can set up a secure FTP site, otherwise we can ship on CD/DVD.

Real-time integration is also possible via web-services.  It's not something we've implemented yet, as none of our customers is in a position to take advantage of such a service, but we'd definately do it at no up-front cost to the customer and roll it into the subscription.

Joe
Monday, July 12, 2004

> That is specifically where OS X provides an advantage -
> running an Apache server under OS X can be as simple a
> matter as clicking on a single button.

Sure...but what if you need to do something more complicated than serve up some static .html pages?  No matter how good Apple's front-end on it is, you still need to know something about apache.  Chances are, there will be *something* you need to go digging in the .conf files for.

Just because Apple pops a slick UI on top and makes it easier to use, doesn't mean you don't need knowledgeable people around to manage it.  And those people are going to get paid roughly the same salary regardless of if you run apache on OS X or Linux. 

Switching to Mac would not significantly reduce the costs of implementing and managing a server-based application infrastructure.  So the ISV/ASP model can definately add value here and reduce costs.

As far as whether OS X is a viable server platform in and of itself, of course it is, every bit as much so as anything else.  But servers and clients are different beasts.  As far as using Mac as a widely distributed client platform, I still say it comes down to the market pull problem of software and developer availability.

Joe
Monday, July 12, 2004

T.Norman:
> I don't think it's a big company vs. small ISV thing

Yeah, you're right there.  There are definately cases where big companies can provide value via subscriptions, and other big companies can realize that value as customers.

Although in your examples, the customer is getting some new piece of data via the subscription (new antivirus def's, new info in the financial DB).  Whereas in our company's model, the subscription simply serves to take the management headaches off of the customer.  Our software could be run just as effectively from the customer's site if they wanted to implement the infrastructure, thereby cutting us out of the loop except for program updates (which the system already auto-deploys as per normal Smart Client behavior).

So I guess the distinction I would make is the size of the customer purchasing the subscription, rather than the size of the company providing it, and the nature of what they are getting.  Having a subscription to something that doesn't provide time-sensitive updates to data doesn't really make sense if you can afford the infrastructure on your own.

Joe
Monday, July 12, 2004

> Sure...but what if you need to do something more complicated than serve up some static .html pages?

In the default configuration, a cgi bin is active. The server can run Perl, Ruby, Python, shellscripts in any of the many shells preinstalled, Applescript programs, or compiled executables.

Dennis Atkins
Monday, July 12, 2004

> And those people are going to get paid roughly the same salary regardless of if you run apache on OS X or Linux. 

True, but fewer hours are required to get things up and staying up on OS X due to:

- everything preinstalled for you
- less frequent patching
- more reliable, fewer service calls

Again, these three reasons are sufficient for IT folks to stay away from OS X because it means less revenue for them and their services.

Dennis Atkins
Monday, July 12, 2004

> In the default configuration, a cgi bin is active. The server
> can run Perl, Ruby, Python, shellscripts in any of the
> many shells preinstalled, Applescript programs, or
> compiled executables.

And what if you want to set up Apache as a front-end for a J2EE app server?  My point is that a good chunk of the time the sysadmin needs to be able to do more than administer the OS and point-n-click around some warm and fuzzy apache config options.

In such cases, most of their time should be spent maintaining the apps, not on the OS itself.  Therefore, while OS X may reduce the amount of *OS* maintenance time, it doesn't really reduce the amount of overall maintenance very much.

Joe
Monday, July 12, 2004

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