I was reading an AMR Research note this morning about Oracle's Fusion progress, and one of the first points was that Oracle is doing double development: building out functionality for existing customers while in parallel building the "brand new Fusion platform".
So I got to wondering, how much effort is Oracle applying to each of these two efforts?
Software companies, like any company, will invest in product development based on the expected revenue return - no new revenue means no new investment. This leads to a truism of on-premise software companies: They are always working for the next customer.
This is because licensed on-premise software companies grow their revenue and profitability through new customers. The next potential customer is making a product evaluation based on the software functionality, and will give a big check to the winner.
But what about maintenance revenue? Well, customers of licensed on-premise software are locked in - they fork over the 20% maintenance every year because they have no choice. It doesn't matter if the software has a new release or not, if new functionality is there or not, or even how bad the support is, 99% of the customers pay the 20% each year. Since there's little risk of losing revenue, existing customers' needs are lower priority.
So the on-premise software company's resources - both product investment and sales efforts - are dedicated to getting the next customer. As soon as the contract is signed with the new customer, the nice salespeople and those amazing technical people that made the software sing and dance will start to dissolve away like they're in a Star Trek transporter - they're being transported to the next potential customer. And the customer is stuck with a license-fee bill for a CD of software that hasn't been installed or implemented yet, much less deliver business value.
SaaS providers, on the other hand, have to earn their customers on a continuous basis, since customer usage and adoption determines the SaaS provider's revenue. SaaS vendors actually help customers increase usage and adoption. Since the customer can leave at any time, the SaaS vendor must continuously work to keep them happy with the software's functionality, value, availability, performance, support, and overall business value.
This continuous accountability to customers leads SaaS providers to invest in functionality that makes customers satisfied. This investment has an immediate positive revenue return - if the provider doesn't invest in current customers, they will quickly lose revenue.
Even more importantly, most SaaS providers grow within their customer base - in our case, about half of our revenue growth is from increased usage and adoption within our enterprise customers. So we have to prove out our value with every new group of users, so they recommend it to the next set of users.
This forces investment where the increasing revenue comes from - both existing customers and new customers for SaaS providers. So, as a customer buying software, which would you prefer - a software vendor who forgets you as soon as you sign their contract, or one who continuously works to keep your business and increase the value they deliver to you?
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