Commercial software vendors market share is dropping due to pressures from Open Source and Software As A Service vendors. Commercial vendors need to change the way they interact with their customers. In particular licensing models have to reflect the value the software provides to customers.
The perceived value that is assigned by the commercial software vendors to their own products and the need for these products to generate revenue to support sales, legal, finance and marketing organizations at the software vendors has lead to a one-sided procurement model in the industry where customers are forced to pay up front before getting to install software. Discounting and enterprise deals further encourage large up front investments based on vague knowledge of what is being purchased. Quarterly pressure to meet Wall Street expectations push vendors even harder to get to the payment and PO decision point.
Sales reps are trained to see value in what they sell and to point out this value to their customers. With software, value is only provided after the software is used by a customer, the shipping of a CD or the download of a license is valueless. In spite of this because payment happens before these events occur the entire software industry is conditioned to attribute value to purchased software, even if it is not deployed. Customers of course see it entirely differently, purchased software is in many ways a liability until it is in production.
When considering a procurement from a commercial software vendor customers struggle to truly understand a software product and until they sign up and provide a PO any information provided is at so high a level it is meaningless to anybody with a technical need to determine a product's fit in an organization. It is akin to jumping out of a plane with an untested parachute. Even customers that run long and arduous technical validation processes (Requests for Proposals, Proofs of Concept) still find themselves having to make a large investment before they get any value from the software they select.
As such commercial vendors are losing more and more market to open source vendors and I'm quite sure that this is not just because open source is "free," but because it is easier to procure. With open source the investment in a software product is largely based on internal costs that ramp up as efforts are put into deploying the software. There is no large up-front leap of faith required, or at least a smaller one then signing a 5 or 6 figure license deal and hoping for the best.
Software as a Service vendors are also growing in spite of potential concerns about hosting data off-site not because people explicitly want information in an external cloud but because the costs often ramp up based on a model where payment is made when value is provided. Cloud does this in large part because it is the only possible payment model. The fact that the software is running at a vendor location certainly helps in monitoring the actual work or "value" provided by the software service.
Traditional on-premise software vendors need to adapt to these new methods of procuring and licensing software. They have to become frictionless, with clear technical documentation, a simple evaluation process, free or low cost development tools, and pay as you go licensing.
If somebody wants to try out software this should be easy to do.
It should download, install and reinstall like a dream. How many times do you get the install of a piece of software to your liking on the first attempt? Doing this should be free and one should not be required to give up private information to be hounded by an inside sales person in a call center.
Since this is commercial software time-bombed, or limited scale downloads, I think, are fair game.
Being forced to pay for development and test environments at the same rate as production systems is unfair, and discourages and inhibits software being put into productive use. The licensing models must take development and test into account, just counting environments by servers, CPUs or cores is not good enough any more.
If somebody wants to take the software into production the licensing needs to be determined by the value the software provides the customer. Payment per connection, user, transaction, something that reflects use, is what is needed.
Such a model would encourage software vendors to truly change their behavior. Vendors do not want to leave customers after the purchase. If new prospects did not come up they would be very happy to continue helping existing customers deploy the software that they truly believe makes customers more efficient. But new customers come along asking questions, wanting presentations, demos, workshops and proofs-of-concepts as *they* now wrestle with the decision whether or not to jump out of the airplane. Because of the software license model vendors are forced to move on to customers that are still at the evaluation stage.
Commercial vendors have to widen the playing field and get an order of magnitude more people trying out commercial software without the the sales process getting in the way.
This would happen in one fiscal quarter if software vendors received compensation when their software provides value in production. More people would be trying out commercial software and the overall share would increase, they would be on a level playing field with cloud and open source vendors. Think about your vendor now compensated to grow the productive use of software not getting you to simply purchase it. All the Wall Street pressure would be focused on deploying systems not just getting POs created.
Until the commercial software industry realizes this and changes it's licensing models more customers will grow frustrated with them and they will continue to see their market share shrink.
