General License vs On Demand Services

Customer Relationship Management solutions dramatically evolved for the better when Salesforce.com was born in 1999, just eleven months before the beginning of new Millenium.  The significance of its birth cannot be overestimated.  For the first time, a CRM solution in a browser  was at hand, providing access from any internet-enabled personal computer.  Hundreds of thousands of salespersons and sales managers log onto the Salesforce.com system multiple times a day to store and retrieve information critical to the tracking of revenue generation.  Tens of thousands of marketing specialists log in to generate and track marketing campaigns.  Likewise, tens of thousands of service managers open, track and close trouble tickets daily.  It’s all “in the cloud”, and the services of Salesforce.com are all “on demand”.  Salesforce.com hosts the database and supports the technological infrastructure behind it.  Salesforce.com also has established an “army” of  third party software developers who provide “add-ons” and “extensions” to the built-in capabilities “out of the box”.

Since the birth of Salesforce.com, quite a few competitors have appeared on the scene, each with a special “twist” that flavors their particular solutions.  The commonality of these systems is that they are all browser-based with “on demand” services offered competitively to Salesforce.com.

The Salesforce.com business model is quite common in the Software as a Service business.  Salesforce.com and most of its competitors license their software services by the “user”.  A monthly user fee is assessed under a single or multi-year contractual arrangement.  Sometimes CRM vendors offer promotional “loss leader” pricing for a tiny number of users, along with limited, basic functionality, and little to no live support.  $5.00 per month for a couple of users is not unheard of.

It’s a great hook.  As a company grows, management relies more and more on the tremendous benefits CRM brings to the business, and it becomes an indispensable tool.  It also, very sneakily, becomes a major line item expense in the annual operating budget as that user license quickly typically jumps to  a common price point of $65.00 per user per month and the business adds users.  Some CRM vendors offer discounts, but multi-year commitments are required.

 

Over time, some of the newer CRM software developers adopted a “Silicon Valley” marketing approach to gaining attention.  They brought their solutions to the marketplace “free” to users.  The concept has been proven effective time and again.  If you choose to do a web search using Google’s search engine, have at it.  You won’t receive an invoice from Google for use of this basic search functionality.  If you use basic social media such as Facebook or Linked-In, basic services are free.  As Silicon Valley software companies brainstormed on how to “monetize” what were introduced to the marketplace as “free” services, a number of paths were taken.  Advertising was sold based on “clicks”.  Enhanced and new services based on the original free service were offered on a “subscription” or fee-based arrangement.  Some software solution companies simply began charging for their products/services once they became popular.

Some CRM software publishers actually made their software “free” to users under the intellectual property designation of “General License”.  “General License” allows anyone who wants to use the software to do so with no licensing fees as long as the user meets certain legal criteria in the licensing agreement.  It’s not tough and it’s not “rocket science”.  Usually the developer retains ownership rights to the software and must be acknowledged in the code as the owner/developer of the original software.

Another aspect of this type of software offering is “Open Source”.  That’s a software technical and legal descriptive term.  It means that the original program code written by the developer is available, and usually, under the terms of the “General License”, the original source code may be modified or added to or subtracted from to enhance or limit functionality by a general licensee.  Yep.  The program may be changed to do what the general licensee NEEDS it to do.  There’s nothing encrypted, compiled, hidden, or otherwise unapparent about the underlying programming code of the software.

So why would a software publisher do this?  Let me ask you something:  Does Twitter charge you for its use?  Twitter does generate revenue through advertising.  Does NBC/Universal charge you to watch “The Today Show” in the morning if you receive it “over the air” from your local NBC affiliate in the U.S.A.?  Nope!  At least not yet, anyway!  It is advertising supported television programming.

As time marched on, some software publishers “threw in the towel” and began charging user subscription fees for CRM software, following the Salesforce.com business model.  Some offer a “spiffed up, feature enhanced” version for “on demand” subscribers and a great, but not “spiffed up”, free open source/general license version for its open source/general license developer and user community.

And SO. . .What does all this mean to you?

In the “On Demand” customer world of paying monthly user fees, a user here, a user there, pretty soon, to paraphrase the late Senator Edward Dirksen of Illinois, we’re talking real money.  It adds up quickly.  For a tiny organization that will never grow beyond two or three users, “On Demand” is a cost-effective solution.  For an organization that does not have access to in-house or contract external information management technical support, a licensing operating expense monthly or annually is a viable solution.

However:   When business leadership envisions significant growth and the need to have more than three or four users utilizing a CRM solution, the prospect of high four and five figure annual licensing expenses gives pause.  Many huge corporations even “bite the bullet” and pay, finding the convenience to outweigh supporting a CRM system using their own technical resources.  If a business is willing to take charge of its own CRM solution, ongoing software costs, in many circumstances, may be dramatically reduced in the long run.  Quite a number of CRM General License/Open Source solutions actually offer more feature capabilities than are normally seen by a Salesforce.com user.

Interestingly enough, many small and medium size businesses already have access to physical technical infrastructure they are already paying for to host a CRM solution.  Many shared web hosting arrangements are capable of hosting many CRM solutions within a website “subdomain”.  It generally costs little to no additional money when a company has an externally hosted website.  The business actually has access to its own web-hosting account “cloud”.

For less than the licensing costs for ten users for a year in a typical “on demand” environment, a general license/open source solution can be set up and users trained.  Maintenance and backup (if not provided by web hosting vendor) can be arranged on an on-going or “per incident” basis for a very nominal investment.  It’s really a hedge against the expected ever-increasing licensing costs in years to come.

Call us for a free thirty minute consultation!

 

Oh, and by the way, Senator Everett Dirksen (R) Illinois, was US Senate Minority Leader in the 1960’s.  The entire quote was in reference to federal government budgeting and spending.  He commented in his gravelly deep voice:  “A billion here, a billion there, pretty soon we are talking real MONEY!”

 

 

 

 

 

 

 

Thank You to West Houston Chamber of Commerce!

A special thanks to the Houston West Chamber of Commerce for the opportunity to briefly address the Chamber’s “Business Over Breakfast” monthly networking meeting in March.  Specifically, thanks to co-hosts Joanne Ericksen of The Ericksen Law Firm, Bill Thorne of Edward Jones Financial Advisors, and Jeannie Bollinger, Chamber President.  It’s a great place to connect with potential business referral partners!

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