

How Third-Party Licensing Can Ruin Your Launch - rwalling
http://www.softwarebyrob.com/2009/03/12/how-third-party-licensing-can-ruin-your-launch/

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mdasen
To be fair, this is kinda how many b2b companies work - not just this one. At
my work, we get vendors that promise everything, charge a ton and we set up
all our data in their product, deliver on less than half of what they claimed
and by that point it's too late/expensive to move away from them.

It's why I don't trust enterprise vendors. They make their money of few, very
high margin sales. They claim things like "support packages", but really
that's just a way to let IT managers pass the blame onto someone else - your
users can blame the vendor rather than blaming you (even though you chose the
vendor)

It's dangerous to work with any company to whom losing you as a client would
radically alter their finances. To illustrate the difference: if I cancel a
37signals-style app at $40/mo, sure they loose money and they don't want that,
but it doesn't really alter their financial picture. They don't need to lay
off staff or adjust salaries or anything. If my business terminates our
contract for one of our "enterprise" packages, that company is losing
$50,000+. At that point, they might need to let people go. Someone is probably
losing a huge sales commission that will significantly impact their life.
They're going to do everything to prevent that. Since actually creating a
quality product is difficult, they tend toward lock-in and promises. So when
the IT manager is asked "why are we still using this horrible product?" they
can say, "it would cost so much more to transfer out since all our data is in
it and we can't get it out without essentially re-doing all that data entry"
and, "they've promised XYZ that will fix things in 6 months." By the 6 month
mark, the IT director can pass the blame onto the company saying, "how was I
supposed to know they wouldn't deliver?" if anyone still remembers.

I'm sorry you got snagged by such a bad company, but there are many worse
companies out there. Always beware of any company that can't lose you as a
customer. People think that means they'll get good service from them. Really,
it means that they'll use any underhanded trick to keep you on the hook hoping
that you won't take the steps to rid yourself of them - for example, once you
give functionality, it's very hard to take it back and if we had offered lots
of options and moved down to 4 within our firm, we'd never hear the end of it,
right decision or not.

~~~
param
OT/separate question, but how would you recommend a new company venture into
the enterprise software model? There will always be a first customer a startup
would need that would be critical to the finances/bottom line

~~~
mdasen
Well, when you don't charge hefty fees for software, no matter how small you
are, the revenues aren't critical.

For example, if I launch service X - say a website spell checker like we saw
here not long ago - and charge $20/month, the $20/mo from my first customer
becomes 100% of my revenues until I get another customer. So, loosing that
customer means that I loose 100% of my revenues! However, the absolute drop in
revenues is only $240/year - not pocket change, but also not an amount that
I'd compromise my morals over.

The issue with many enterprise companies is that they get a dozen people
paying $50,000/year and at that point, losing one customer is a big deal both
in terms of percentage and in terms of absolute revenue lost. If you're a
company of 6 people and you loose an account paying you $50,000/year, your
ability to pay salaries, etc. changes drastically. If you're a company of 6
people and you loose $240/year, it doesn't matter if they're your only
customer, it doesn't affect whether you can pay salaries. It still might not
be profitable, but individual customers don't determine your fate - masses of
customers do.

Mostly, I just don't think you can act morally in a relationship where the
other party holds so much sway over your livelihood. If they hold that kind of
sway, you will do whatever you can to prevent them from exercising that power
- promising changes you have no intention of making, trying to make it hard
for them to leave by locking-in the data, etc. And in business, that happens
when you're selling a product at such a high price to so few customers. If you
base your business model off of selling at lower prices to more customers, no
single customer can hold that sway over you because, while customers are
always important and should be well-treated, if they decide to go another way
it can be an amicable break because they aren't hurting you that much.

Really, I think that the enterprise model is broken. A lot of it is based off
of trying to sell products to pointy-haired bosses by slick salespeople for
lots of money and then locking the customer into your system. _shudder_. I'd
suggest a completely different route for enterprise software: go as open and
cheap as you can and build on volume. Rather than worrying about someone
leaving, give them a reason to stay. The enterprise vendors we interact with
don't have that attitude. They don't roll out something useful unless it can
go on a checklist. They don't care about the quality of something since that's
subjective and isn't as easily seen in "requirement evaluations". Disrupt the
system. Heck, go open source and offer a hosted solution. Businesses love
paying for hosted solutions because they can wipe their hands of it. Likewise,
you can assure them that, if at any time in the future you become an evil
company, they can take the code and host it themselves. That gives you a
consumer-facing drive to improve, rather than lock-in. Heck, if the company
needs something different, they can program it themselves and give it back to
you! Free development! And you get a good reputation as a hosted service that
doesn't lock people in and is constantly giving people more reasons to love
you. That's the models that I'd recommend. People will pay for your expertise
- you developed it, you administer it, you make sure it continues to work with
no hassle on their end. That's a lot of value compared to many enterprise apps
that are expensive _and_ require companies to have someone to deal with it.

Just make sure that you don't get into a situation where your morals might be
challenged by your wallet. When that happens, you'll start doing evil things
to your customers.

~~~
nuclear_eclipse
The real problem is that those same pointy-haired bosses create a positive
feedback loop when they look at prices. If company A is charging $50,000/year
for a product, and company B charging only $500/year for a competing product,
the PHB immediatly wants to know _what's wrong with product B_ , and never
asks why company A is gouging them.

It creates incentive for "enterprise" companies to continue charging
exorbitant prices, because PHB's tend to conflate price with value...

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jcapote
Somewhere, stallman is laughing heartily.

~~~
patio11
Yeah, he's going "That's what you get for trying to sell software, fascists"

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tom_rath
Was the vendor's concern that a customer of yours could just pull your
royalty-free license out of your uncompiled source and then gain access to
their product without paying for a license? So, you would be distributing
their registration key for free use with every purchase?

That sounds like a legitimate concern. If someone was distributing a valid
registration key and fully-functioning application for one of our products (in
exchange for a single royalty-free license), I'd give a blanket 'no' too.

~~~
nuclear_eclipse
Considering it's C#, and a "compiled" DLL is just preassembled bytecode
anyways, I can't imagine it would be much more work to disassemble the DLL
anyways...

~~~
tom_rath
...which likely explains the vendor's 'no' to a dll distribution as well.

Crappy to have happen to the author, but I can understand the vendor's
decision in this particular risk/reward choice.

~~~
chime
Especially if the vendor's library has a higher sale price than the
submitter's app.

