Comments on: Monday’s Musings: It’s The Relationship, Stupid! (Part 4) – Stop Under-investing In R&D http://blog.softwareinsider.org/2009/04/27/monday%e2%80%99s-musings-it%e2%80%99s-the-relationship-stupid-part-4-stop-under-investing-in-rd/ Your buy side advocate for enterprise apps strategies, vendor selection, & contract negotiations Fri, 18 May 2012 17:16:50 +0000 hourly 1 http://wordpress.org/?v=3.1.3 By: Rebecca Gill http://blog.softwareinsider.org/2009/04/27/monday%e2%80%99s-musings-it%e2%80%99s-the-relationship-stupid-part-4-stop-under-investing-in-rd/comment-page-1/#comment-1712 Rebecca Gill Tue, 12 May 2009 12:27:53 +0000 http://blog.softwareinsider.org/?p=2121#comment-1712 Great post Ray. Last week I was at our annual conference, which is my opportunity to immerse myself with customers. While I love the interaction, I do become so saddened by the stories I hear on our industry as a whole. While we do not personally take part in those vendor practices you described, I have heard similar tales from our new customers and their respective consultants. For those of us who take pride in our product and our industry, such activities are truly upsetting. Great post Ray. Last week I was at our annual conference, which is my opportunity to immerse myself with customers. While I love the interaction, I do become so saddened by the stories I hear on our industry as a whole. While we do not personally take part in those vendor practices you described, I have heard similar tales from our new customers and their respective consultants.
For those of us who take pride in our product and our industry, such activities are truly upsetting.

]]> By: “Walk in my shoes” - Vendor/Stakeholder Relationship Strategies « Business Process Management (BPM) - InSights http://blog.softwareinsider.org/2009/04/27/monday%e2%80%99s-musings-it%e2%80%99s-the-relationship-stupid-part-4-stop-under-investing-in-rd/comment-page-1/#comment-1648 “Walk in my shoes” - Vendor/Stakeholder Relationship Strategies « Business Process Management (BPM) - InSights Thu, 30 Apr 2009 22:10:28 +0000 http://blog.softwareinsider.org/?p=2121#comment-1648 [...] Part 4: Under-investing in R&D and then repackaging existing content as new innovation  [...] [...] Part 4: Under-investing in R&D and then repackaging existing content as new innovation  [...]

]]> By: John Martin http://blog.softwareinsider.org/2009/04/27/monday%e2%80%99s-musings-it%e2%80%99s-the-relationship-stupid-part-4-stop-under-investing-in-rd/comment-page-1/#comment-1625 John Martin Mon, 27 Apr 2009 20:05:40 +0000 http://blog.softwareinsider.org/?p=2121#comment-1625 Ray: This "bad behavior" is endemic to the badly broken (from the customer's point of view) relationship experience with on-premise software. First the client invests a huge amount on up-front software licenses, infrastructure (prod & test & dev), and an implementation project run by a third-party who is motivated to make it as complex and costly as possible... and then the customer has no options to move off the on-premise solution, so must keep paying 22% in ongoing maintenance for no ongoing value-add (because upgrading is really a re-implementation with customized on-premise software). On-premise software vendors spend huge amounts on R&D, but for existing customers their return on R&D is close to zero because: - The on-premise vendor's efforts are diluted by supporting ten years of old versions across dozens of different platforms and versions. All that patching, porting and testing takes a big chunk (70-80%?) of a mature on-premise vendor's R&D efforts. - The on-premise vendor is always focused on the NEXT customer, rather than the customers they already have - customers who have given them their license fees already and have no alternatives. So the vendor works on the next market segment, or repackages a release to re-sell into their installed base. Here's a proposed Software Law of Attention: The attention you get from a software vendor is directly proportional to the amount of future discretionary revenue the vendor can get from you. (Note that maintenance fees are almost always not discretionary). When on-premise software is purchased all up-front, zero future discretionary revenue means zero attention. SaaS fixes the fundamental dynamics here, and customers are realizing that long-term relationships with SaaS vendors are much more positive - customers get ongoing upgrades for free, ever-expanding functionality and value, and a vendor who is motivated to have customers use and expand their use of the product. And customers have a way out if the vendor doesn't perform. - John Martin, BuildingSaaS.com Ray: This “bad behavior” is endemic to the badly broken (from the customer’s point of view) relationship experience with on-premise software. First the client invests a huge amount on up-front software licenses, infrastructure (prod & test & dev), and an implementation project run by a third-party who is motivated to make it as complex and costly as possible… and then the customer has no options to move off the on-premise solution, so must keep paying 22% in ongoing maintenance for no ongoing value-add (because upgrading is really a re-implementation with customized on-premise software).

On-premise software vendors spend huge amounts on R&D, but for existing customers their return on R&D is close to zero because:
- The on-premise vendor’s efforts are diluted by supporting ten years of old versions across dozens of different platforms and versions. All that patching, porting and testing takes a big chunk (70-80%?) of a mature on-premise vendor’s R&D efforts.
- The on-premise vendor is always focused on the NEXT customer, rather than the customers they already have – customers who have given them their license fees already and have no alternatives. So the vendor works on the next market segment, or repackages a release to re-sell into their installed base. Here’s a proposed Software Law of Attention: The attention you get from a software vendor is directly proportional to the amount of future discretionary revenue the vendor can get from you. (Note that maintenance fees are almost always not discretionary). When on-premise software is purchased all up-front, zero future discretionary revenue means zero attention.

SaaS fixes the fundamental dynamics here, and customers are realizing that long-term relationships with SaaS vendors are much more positive – customers get ongoing upgrades for free, ever-expanding functionality and value, and a vendor who is motivated to have customers use and expand their use of the product. And customers have a way out if the vendor doesn’t perform.

- John Martin, BuildingSaaS.com

]]> By: Naomi Bloom http://blog.softwareinsider.org/2009/04/27/monday%e2%80%99s-musings-it%e2%80%99s-the-relationship-stupid-part-4-stop-under-investing-in-rd/comment-page-1/#comment-1623 Naomi Bloom Mon, 27 Apr 2009 18:45:35 +0000 http://blog.softwareinsider.org/?p=2121#comment-1623 Ray, this really resonates. And the issue becomes more complicated when the maintenance revenues from legacy product lines, developed or acquired, are used to fund new product lines to which those legacy customers may not be able to migrate. While it's clear that all vendors must invest constantly in R&D, this will be a tough period for HR software vendors because of regulatory activism. Ray, this really resonates. And the issue becomes more complicated when the maintenance revenues from legacy product lines, developed or acquired, are used to fund new product lines to which those legacy customers may not be able to migrate. While it’s clear that all vendors must invest constantly in R&D, this will be a tough period for HR software vendors because of regulatory activism.

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