Licensing fees and restrictions have become an important element in IT budgets. Certain new licensing policies from large software companies seem to have been designed to boost profits at the expense of customers and partners whose historical technology decisions have left them no choice in what software they can use.
Looking specifically at the application development channel, licensing fees can be the measure of a company`s longevity and its ability to innovate for those firms that create solutions and form a critical aspect of most software vendors` go-to-market strategy. Many of the new licensing demands some vendors have implemented to boost their revenues in this tight economy have made it tough for local developers to create new applications without the financial backing of a larger corporation - which are generally loath to support an unproven technology.
"Most innovative application development happens in smaller concerns where creative people with industry-specific knowledge devise solutions not available from larger software companies who merely make incremental improvements to their existing products," says Henry Adams, country manager of InterSystems South Africa. "These companies generally do not have large development budgets providing them with the luxury of time and money to be spent as required. More often they survive on a shoestring until they actually make a sale, which is usually after many months of development."
Increased licensing fees and restrictions on how development tools can be used hit home hard for smaller companies, often forcing them out of business or into non-core businesses simply to remain afloat. This reduces the amount of potential innovation, which has a domino effect on the industry as it is forced to provide more of the same.
"What the industry needs is a new model of partner incentives that actually makes it as easy as possible for developers to create new applications and take them to market in the shortest possible time," adds Adams. "Naturally, the software vendors supplying these offerings are also entitled to make a profit on them. A channel model in which everyone wins must therefore be devised."
Adams suggests a win-win model that will see the principal delay its demands for licensing fees until the partner has sold its application and is making revenue from it. This provides the developers with the advantage of not having a huge bill to pay before they have started their development and only asks them to pay once money is coming in.
"It is important to note that this model is not charity," Adams asserts. "The principal does not forego licensing revenues, but delays them until the new product is selling. The partner can therefore calculate the costs of the licensing into the price of the product and pay up as revenue comes in. This ensures the software developer can focus on innovative thinking to create a world-class solution best suited to the markets it addresses instead of worrying about paying the bills.
"This method is risky. There is no guarantee that the final solution will sell, or even if the company will finish the product," Adams admits. "However, succeeding in an unforgiving economy means giving partners every possible chance to succeed and get their products to market."
There`s an additional benefit to assisting partners in this manner that will lead to more income than will merely the licensing of development products. For every sale of the final product, the principal receives licensing revenue from the customer as well for the use of databases and other products. And these are renewable each year - and annuity revenue always makes bean counters happy.
Making money only when your partners make money is not a common channel incentive in the IT sector, perhaps because of the free flow of money in this segment in the past. However, as the industry matures, customers and developers will be looking for solutions that meet a corporate need, and one in which all parties involved are committed to a long-term, mutually beneficial relationship.
"Squeezing every possible cent out of your partners and customers as soon as possible is not a viable solution for the long term," Adams concludes. "Assisting them in the development and implementation of their solutions and then sharing in the revenues forges a closer relationship, while giving them every assistance in succeeding in the market and generating larger revenues - which means greater revenues for the principal. And that sounds like a good long-term business model."
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