Free and Bundles: The Future of Information Access
November 9, 2008
In Denmark I last week. I had a number of interesting conversations. One person was explaining the open source approach to content management. In this context, “content management” or CMS is limited to authoring systems for Web pages. The number of vendors in this market sector underscores the need that appears to exist in organizations for software for Web content. Personally I think that most of the CMS systems were home grown. Now entrepreneurs want to take one off solutions and commercialize them. I am not convinced that there is much of a future for most CMS vendors, but I will be long gone before this software segment stabilizes and consolidates to a handful of players.
Accenture offers a new white paper that noses into these topic areas as well. You can read it here. Note: you will have to either complete an annoying survey or find a way to display the summary by Susan Campbell called “Accenture Whitewater Tackles Software Pricing Challenges.”
One interesting trend I noticed at the JBoye conference was the use of for fee services as part of the open source business model. Let me give you two quick examples and then offer a general comment.
First, navigate here to Phil Wainewright’s November 6, 2008, “Funding Software from Add On Services.” This article explains how a company can give away software and then charge those downloading the software for services. The idea is to give away software as a service, then monetize it through what one of Mr. Wainewright’s sources called “alternative channels.” In effect, the software is the loss leader. Less delicately, this is a bait-and-switch method with the edges sanded and nicely finished. A number of search and content processing vendors use this model; for example, Tesuji.eu, among others.
Second, take a look at Vinnie Mirchandani’s “IBM Tries the GE Approach to Complex Bundling” here. The article explains that IBM trying to emulate the GE approach to sales; that is, “bundles of complex systems and projects covering power plants, aircraft engines, their maintenance and other large infrastructure items.” IBM’s approach is to apply this type of thinking to “smart infrastructure” sales. The goal is increased revenue.
I think these two examples make clear that the traditional business model for some types of software needs updating. On one hand, the vendor gives away one thing in order to sell another; specifically, the software is free, but the knowledge required to customize and maintain that software is not. Companies think the vendor is giving them a deal when the price tag is probably comparable to what the software license fee would have been under the old pricing model. In short, the price list is gone. Replacing it is a series of fees that are variable and often tough to predict. A tight license goes out the window once a request that is out of scope is agreed upon. The “old license” fee is gone; the new and higher risk variable model is in.
The bundle is more interesting. The notion is that a big system can be delivered by a vendor with end to end capabilities. Instead of buying components from multiple vendors, the bundle turns the job over to a single firm. The approach is comparable to building a house using a general contractor. In high technology, the idea is even more appealing when the general contracto0r makes some if not all of the components and has the technical expertise to put them together and make the system work. The result is perceived savings, and the vendor gets a much larger fee. The client gets a deal.
But in each of these two business models for information access, there are some issues that don’t often take center stage when building a house, when looking for a one stop shop, or trying to pare down costs. Let’s look at three:
- Information is not easy to define. It has some slippery characteristics. Regardless of the cleverness of the vendors’ business models, costs are often difficult to control.
- Requirements for information can change due to exogenous forces; therefore, the mercurial nature of information is made more volatile by events or needs that cannot be anticipated. The technology to deal with these issues may not be affordable by the vendor or the client. In effect, the system can’t and won’t work in the “new” environment.
- The moon launch scale of a mega project does not work in organizations where information needs are distinct to operating groups, departments, and possibly individual knowledge workers. As a result, the big system forces some units of the organization to go in a different direction. This increases system duplication, costs, and situations in which no one knows which information is the “right’ information.
The new business models appear to give customers more options. That is true, but these are options for charging internal accounts. The costs and risks remain unchanged. In some situations, the new business models guarantee cost overruns. Mangers who understood traditional licensing agreements may be exploring new cost territory without a base of information on which to make management decisions.
New business models are in vogue. Customers want these options. My hunch is that the cost and management issues will increase. The net net is that the new business models do not reduce the costs for an information centric system. Search, CMS, and text processing will remain “problems” no matter how the customer pays the bills.
Stephen Arnold, November 9 2008
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