Why Pay for Software?

From SMB to enterprise, businesses will seek an optimal ROI result. These decisions are based complex sets of requirements that may or may not include industry standards, regulation, best practice, or other considerations. Businesses will balance value with cost and make decisions according to their needs to remain competitive and grow. That being said SaaS and open source clearly provide new options and potentially significant value over traditional on-premise software models.

SaaS and open source business models have been disruptive forces in the software industry. These new models change the sources of revenues (e.g., ad-supported) but do not change the laws of business (i.e., you have be profitable to stay in business). These models also create downward margin pressure on traditional players with new innovations to sales, marketing, and delivery processes.

Back to the question of "free," Chris Anderson uses many examples of ad-supported information which is certainly not free to the advertiser. As more than $69B in ad revenue moves away from third-party sites back to corporate sites and social media, revenues have to come from somewhere. Free is a simple answer to a complex question. The reality is that software business models are becoming more sophisticated (e.g., increasing revenue sources) and more efficient (e.g., new delivery models) while businesses are becoming more open to new delivery and payment models.

While some ad-supported, free-to-user software will exist, the vast majority of it will be dependent on fees of some sort (e.g., per transaction, per month).

I like the way this question is posed since it's take us out of the open source realm and focuses us on the real issue, which is new and emerging models for delivery of software.

Software is a published asset, much like a book or a song. If the publisher wishes to grant freedom to copy the published asset to the universe at no cost, that is their decision. Now, if that same group wishes to also earn a profit, then the published asset needs to be paid for through other means.

As the consumer of the published asset, no cost sounds great. Musical artists that are offering their songs as freely downloadable MP3s are popular with their listening audience, but consequently, these artists make money on royalties from radio station play and concerts. They never made money on the delivery medium. Note, they make a lot of money from a small number of actual interactions with the consumer base.

Advertising is a great revenue stream if you can get it, but annoying as heck to the consumer, so the software you're providing had better have a lot of value to overcome the annoyance of being "pitched" with every click. Again, here we have great earning potential with very few touch points with the consumer base.

Services, in my opinion, is the least attractive revenue option since it's the worst situation. It requires a lot of interaction with the consumer base for very little income. Hence, you are reliant on availability of expensive human resources in a market where the numbers of these resources are shrinking relative to the demand.

It is easy for us, software experts, to discuss free software. We know how to handle problems in our installation, We know how to approach open-source community and we are not losing money on bad software because we always just evaluate it.
For a business that uses software, it is like any revenue generating or cost saving tools. They would never think of getting a track for free and the same for software.
In business, people expect to pay money for a service or an asset that they benefit from. This is totally different for non-business users. But, then, they do not generate revenue or save any money from it.

Great Posts. Having read the previous comments, I have the opportunity to add a little humor from a recent life experience.

This past weekend my wife came home laden with shopping bags confidently asserting that she had “saved us over 50%� on a new wardrobe. Experience has taught me that after a shopping spree the correct answer is "it looks great and fits perfectly".

Fortunately I could get into work on Monday and focus on the purchasing logic that makes a bit more sense to me.

In business we can ask three very important questions before the shopping bags show up outside the data center.
• What is the expected outcome and the desired end result from the acquisition and what is the expected return on investment?
• How does that return measure up against other initiatives that we are evaluating?
• What are the total costs; both up front and recurring and will it have a material impact on cash flow?

Three questions I would not dare to broach on the home front.

In full disclosure, I am a CMO of a SaaS company, so the following may show a bias, but here goes.

If a “free� option requires more resources or adds an additional element of risk to the traditional perpetual licensing models are they really “free�? In our world, all the costs have to be calculated into the equations for a true return on investment assessment. “Free� software that requires two extra full time FTE’s, requires more testing or has complicated licensing restrictions, may not be the bargain that it appeared to be after all.

A SaaS solution that requires additional resources expended by an IT organization to become compliant with existing infrastructures or data governance issues may also not be the ticket.

What has changed in our world today is that Open Source and SaaS alternatives have emerged as viable and legitimate alternatives that can represent real and significant cost saving. You mileage may vary, so do your own math.

But from where I stand, there is no denying, the software world has changed and as an industry, I believe we are all better off for it.

I'm going to answer on that one taking advantage of social applications. Just view the clip about Client-Vendor relationship: http://bit.ly/oTiEr. It says it all!

Why pay for food? Seriously, why not just rely on picking grass off of public lawns for a salad? Or hunting pigeons?

Volunteering time for great causes (like open software) is a wonderful endeavor; but who pays those volunteers' food and shelters when they are not generously offering their time? If being paid consists in delivering add-on services, how do we keep those systems as vanilla as possible to ultimately contain their TCO? Can all business processes, around the world, regardless of the industry, and customers, be reduced to the same line of code? That we can all agree upon?

Let's push the logic all the way - if all software is free, does it mean that all commercial software currently in production and used in hundred of millions of organizations worldwide is going to be supported and innovated upon by the open-source model? And then, does that mean that all innovations in software can do without the financing of the venture capital community?

Maybe, maybe not, but before jumping with both feet onto the bandwagon we should probably wonder where the train is going.