by Brian Terrell

If the mid-market finance and accounting software business were invented today, what would be different? Would software publishers distribute their products through a channel of value-added business partners? Would they offer a perpetual license to end users? Would publishers offer on-premises options?

Today, I'd like to reflect only on the question of whether or not perpetual licensing would exist; however, I welcome your thoughts on the distribution channel and on-premises software. The perpetual license question may be the easiest to consider, so we’ll start with that.

The flip side of perpetual licensing is subscription licensing. The word “perpetual” makes this contrast self-evident, as a subscription software license covers a limited time period. When I entered this business in 1991, my publisher offered only perpetual licensing, and software maintenance agreements for mid-market finance and accounting offerings were, to my knowledge, not yet invented for the SMB market. In fact, many thought the world had ended when publishers first started requiring these subscription-based maintenance and support agreements. Change often takes time, but in retrospect making these agreements mandatory looks like the beginning of a well planned strategic pricing change. Abruptly adopting subscription licensing might have driven prospects and customers to competitors.

Subscription licensing required distribution changes, and these mechanisms had not been invented. Self fulfillment and online license validation could not occur until widespread Internet adoption made it possible. CompuServe just didn’t offer the required coverage to mainstream online distribution, and just the name of that defunct dial up service takes me back in time. Lots of things had to change or be invented before everyone could wrap their minds around the subscription model.

And, who would argue that it wasn't for the best? Nothing creates value for small, relationship-based service companies like recurring revenue. Our gentrifying channel needs that value to retire, and we should be working to expand the revenue model to consulting and programming services. Several ideas for consulting recurring revenue exist, but what about models for development services that tailor a publisher’s application to the exact needs of the client? How do we convert that to recurring revenue?

First, offer an automation for a subscription price. Next, ensure the automation delivers the client's desired value over at least 3 to 5 years. Finally, support the deliverable as the underlying application evolves. Then, the customer will renew the subscription and the developer can recover his or her investment over time. Doesn't this model build value in the client's business as well as the service provider's business? With subscription pricing, the developer must focus on satisfying the value proposition over many years instead of only the amount of time required to get the original invoice paid. When one considers both the value created in the software developer's business and the value created in the client’s business, pricing software development on a recurring revenue basis delivers a win-win proposition to everyone! 

Our firm helps Intacct and Sage partners deliver the last mile of functionality as well as best-in-class integration services to end users. To discuss how we can help you and your clients build business value through automation, please contact me.