It used to be that making money from selling software came from well, selling software. But increasingly that's not true. Welcome to the world in which software licenses appear to have become less than half of the source of new revenue for just about every major vendor.
We saw it happen to Great Plains when that company was still independent. We saw it happen to Epicor. The recent SEC filing for a public offering shows that it’s also happened to Accpac. For most companies, new license revenue is now regularly exceeded by service revenue, which includes maintenance and consulting services. That’s hardly surprising news in the recent economy - most resellers have survived making money selling to the installed base, not selling to new sites.
In the Accpac case, it had $16.8 million in revenue from new license sales in the first half of fiscal 2003, up from $16.1 million a year ago. But maintenance revenue ballooned from $16.9 million to $20.2 million in that same time.
In its last public quarter ended Nov.20, 2000, Great Plains had $75.5 million in. Of that, $40.7 million was from services. Go back just one year into 1999 and total revenue was $47.4 million with service revenue at a relatively paltry $20.3 million. Microsoft does not break out the service revenue now that Great Plains is part of Microsoft Business Solutions. But there’s no reason to think things have changed. U.K-based Sage doesn’t break down revenue the same way in its reports. But revenue from support contracts rose by 18 percent in the first half. Overall revenue rose by 14 percent. You get the picture.
This has some implications for how business is conducted. First, it simply demonstrates that most companies that need accounting software have it.
This supports Best Software’s strategy of selling into its installed base, migrating Peachtree users to MAS 90 and crossing selling its entire line, including FAS, Abra, and SalesLogix.
This also may explain some of problems facing Microsoft’s Small Business Manager. Five years ago, SBM might have had a better chance of pushing into the lower end of the accounting market before Intuit sold QuickBooks to most of America. But now the market is saturated and the pace of sales simply can’t reach the volume intended.
Moreover, Microsoft abandoned what should have been a successful upgrade strategy. I’ve always felt that the original Great Plains goal for what became SBM was to sell that product into the installed base of RealWorld, Great Plains Accounting, and Solomon III customers. That might have worked.
But it explains why CRM is the next great hope. Everyone doesn’t have a CRM package sitting on the company computers. There’s some license to sell again.
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