And you thought Oracle had problems. Last week, the enterprise IT giant missed its earnings (again), but announced that the miss was actually a hit. After all, while its new license revenue has slowed, its cloud business is booming — and the company hopes that, over time, its cloud revenue will make up for stalling license revenue.
It's not time to indulge in schadenfreude just yet, however, as it's not just Oracle and the enterprise IT incumbents that are struggling to embrace the future. In my experience, both open source and SaaS companies, which have the right software delivery models for this brave new world of enterprise IT, are still saddled with yesterday's sales model.
Figuring out the sales model, in other words, may be the biggest challenge for today's software businesses, whatever their size or pedigree.
You're selling it wrong
Silicon Valley is well-steeped in the doctrine of disruption, despite some recent attempts to poke holes in Clayton Christensen's seminal The Innovator's Dilemma. And though we talk about technological disruption and the impact things like cloud computing and open source are having on how software is distributed, the even bigger challenge for most companies is actually embracing new models for how software is sold.
Most technology professionals understand this. But understanding and changing one's behavior are two very different things.
So, for example, most software companies haven't yet figured out that enterprise buying power has shifted from IT to developers, who often report up to the line of business instead of the CIO. While the majority of IT spending continues to be owned by the CIO and his or her department, that's changing — and software companies that don't pay attention will soon be paying with bleeding balance sheets.
As Forrester analyst Jeffrey Hammond told me,
"Traditional software companies are essentially creating the last generation of fine sailing ships just as the age of steam power takes over, with steam power being the social developer model. These developers are able to make informed decisions through the web, then buy when they want to. Just as important as modern software delivery methods is the modern software sales model."
Given the need to get the software sales model correct, who can we look to for the right way to do 21st-century software sales?
Selling without (much) sales
The two companies that Hammond highlighted in our conversation are Amazon Web Services (AWS) and Atlassian. Both companies do most of their sales over the web — and both sell to developers, the software equivalent of selling ice to eskimos. (Historically, the received industry wisdom is that developers may influence software purchases but they don't spend money themselves).
AWS' sales model is simple: developers sign up with a credit card, and then they're automatically billed for the services they use — compute (EC2), storage (S3), databases (RDS, DynamoDB), or other services. It's that simple.
Amazon also makes it easy to track usage or buy additional services, all without human intervention. For those companies that get to a scale where an individual's credit card is not enough, Amazon has a salesforce to provide the personalized service some enterprises require.
But even this sales engagement model differs from old-school enterprise sales, because the AWS sales team tries to drive more efficient use of customers' budgets. It's not trying to foist an upfront license fee on customers — rather, it's a way for the customer to derive more value from AWS cloud services.
Atlassian is much the same.
The vast majority of Atlassian's revenue is derived from developer-initiated, online purchases of licenses to use Atlassian products. Atlassian has eight (8!!) enterprise salespeople, who only get involved with customers once they've rolled out enough deployments of Jira or Confluence or other Atlassian products and decide to get a site license. At that point, Atlassian's eight-person enterprise sales team will get involved to help them.
Common denominators in modern selling
In other words, just as software is moving to the cloud, so should the sales model. Low-cost, low-touch sales that happen over the web with minimal or no interference from a salesperson: that's the model for 21st-century technology companies.
And yet, most open-source companies and even SaaS companies that I know tend to err on the side of hiring an expensive, clunky traditional sales force. They take a low-friction, low-cost software delivery model and overlay it with a high-friction, high-cost software sales model. It makes no sense. And yet it's what most companies do. Why?
In large part, it's because software companies like Salesforce are run by the same people who used to run the old-school software companies (or their sales teams). It's easier to break a technology habit than a sales habit.
This may be why the most successful modern software companies are also those that are run by developers. After all, developers don't need to unlearn a history of selling software in a certain way. They already know how they want software delivered, and they also know how they want to pay for it. In short, their instincts are perfectly tuned to the rising purchasing power of developers.
The takeaway? Developers build your product. Maybe it's time to let them build your company, too.
Matt Asay is a veteran technology columnist who has written for CNET, ReadWrite, and other tech media. Asay has also held a variety of executive roles with leading mobile and big data software companies.