By David Berlind
Today, there are two ways for software vendors to make money: They sell new stuff to companies that never had it before and they upgrade old stuff that their customers are already running, often as part of an annual service contract. The vendors' problem is that the demand for new stuff ebbs and flows with the economy. Thus, now is obviously not a good time to sell new stuff. The market is saturated.
For example, everyone has an e-mail system. And there aren't a lot of new companies that need a new one. The software vendor's more reliable and predictable revenue stream comes from keeping an existing customer on the upgrade treadmill. When vendors attempt to guarantee a long-term, annually repeating revenue stream from existing customers, the bean counters call this a "software annuity."
Setting the upgrade pace
The challenge faced by IT professionals and software vendors is how to find the upgrade treadmill's ideal speed. IT managers know that if they board a treadmill moving too fast, they risk getting sucked under. As a result, IT managers should be using their dollars to slow down the treadmill.
IBM's Lotus Software Group may end up learning this the hard way with its flagship product, Domino Server. The next major version—Release 6—is due by the middle of this year. But during my interview with IBM Senior VP Steve Mills, Big Blue's software chief hinted that Domino's current engine has reached the end of the line. In 2003, IBM will release a major overhaul (for kicks, I'll call it Release 7) based on the company's flagship Java 2 Enterprise Edition-based application server, WebSphere. Rumor has it that IBM's $4 billion software division is already working on spin control to keep its software annuity (a.k.a. sales of Release 6) from stalling for a year.
Slowing down the treadmill might be a good idea, but slowing it down too much could be a problem too. Although IT managers shouldn't feel responsible for keeping vendors in business, they do prefer to spend their money with companies that they think will be there down the line, companies with the resources to keep product offerings current with those features that can make a difference to productivity, efficiency, and, better yet, the bottom line. WordPerfect wrote the book on slow treadmills in the early '90s. The company took so long to release a Windows-based version of its namesake word processor that confidence was rocked, there was a mass exodus to Microsoft Word, and the rest, as they say, is history.
On the one hand, IT management hates the idea of constantly upgrading. On the other, enterprises depend on vendors, as their technology partners, to make sure that competitors don't zip ahead thanks to better strategic technology decisions. With WebSphere running under its hood, Lotus Domino Server, for example, will be well positioned for what may turn out to be the age of vertical integration.
Thanks to standard Web services protocols and Java, the overhaul should make anything in the Domino universe easier to access by suppliers and customers. Had Lotus neglected to support the forthcoming revolution of standards-based integration, competitors using more up-to-date platforms could have beaten its customers in numerous ways.