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Nobody is paying you for your code

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I think that one of the more interesting facets of a software company is that what people are buying and what they are paying for aren’t remotely the same thing. If you run a software company, or at least work for one, then you’re peripherally aware of the fact that your company writes code, builds executables from that code, and then sells them to other people in an effort to make money.

That money pays your salary, hopefully gives you some sort of health and dental benefits, and keeps the lights on at the company. But the code you are producing isn’t what people are paying for. Not in the least.

People are paying you to solve a problem for them. Something that’s painful. Whether that pain is a business problem: ie: we need an email server, or a consumer problem: ie: I’m bored and I want to play the game your company wrote.

I think that a lot of companies tend to forget this. And when they do, that’s when feature creep happens. Companies start putting features into a product because they don’t have any value left to add. And they chance the UI here to make it look like they did something important, when in reality all they did was change the UI to make it look better so they could charge you for your yearly software maintenance fees and get away with it.

It still astounds me that these companies get away with it. Or rather we let them get away with it. Because we continue to pay them money to do little more than sit on an existing product and let it languish rather than dedicating their resources to making the product better.

When a product stops getting better, we as customers need to stop paying for software maintenance releases that simply don’t happen.

This does beg the question of how to address SaaS applications. When a product has matured enough, the company owners don’t really need to do anything with the software and largely, they can get away with it. I’m sure that under the covers, some tweaks here and there happen, but on a broader scale, a mature SaaS product doesn’t change much. It solves the problem it needs to in a relatively bug free manner.

What you’re paying for with a SaaS is the fact that you don’t need to support the infrastructure behind the application. That’s a very compelling reason that SaaS applications have taken off the way that they have. Another good reason is the pricing model. Let’s say that you want to buy 1,000 licenses of a $300 application. That’s a $300,000 investment. But let’s say that they charge a tenth of that per month. Paying $30k/month isn’t nearly as bad as paying $300k all at once for something that might not even solve your problem.Problem Solved, Shiny Solutions Word with Problems Shadow

But again, customers aren’t paying you for your code. At least not directly. They’re paying you to solve a problem. When you’re building a business, remember that. If you can solve a problem, you can make money. Sometimes the trick is to find a problem that needs solving or that can be solved in a unique way.

When you’ve done that, you’ve found something that people will pay you for.

4 Comments

  1. Chad Harper on November 4, 2010 at 11:02 am

    Having worked in IT for about 10 years now, I can tell you nothing frustrates me more than licensing. You make a great point that we’re not buying code, but, as one fairly large ERP vendor recently put it, we are buying “the right to use the software.” On top of that, that same software vendor charges an 18% maintenance fee per year for patches and support. If you go off maintenance, and seek to get back on? Forget it. They rake you over the coals to pay for support you didn’t use during the time you were off maintenance, then want an exhorbitant reconnect fee, then want you to commit to a three year agreement. Geez, if you don’t want me to use your software, you could just say so. Incidentally, during my tenure on maintenance, I paid them nearly $300,000 and logged 10 total tickets and didn’t upgrade once. $30,000 per call? That’s good work if you can get it. We also explained to them how Microsoft had nerfed DCOM and security was handled different in 2003 than in 2000. You’re welcome.

    I don’t think SaaS is the answer either. At least not from a medium to large enterprise standpoint. SaaS works extremely well in smaller installations but scales up very poorly. The real demon on this decision is who owns the architecture (not so much the software). Companies, especially in the build-to-flip equity capital world, are trying to get out of the game of data centers and depreciating a huge asset base. This makes on-demand solutions like managed hosting or SaaS so appealing. Trouble is, a lot of decision makers are getting caught in the buzzword trap as SaaS vendors are throwing around sexy words like “cloud computing.” Most SaaS setups are as much “cloud computing” as they are a meatball sub (pardon the food analogy, its nearly lunch time).

    Case in point. I can implement a mature ERP system at a company of 500 users and own the hardware and licensing in the traditional model for under $750,000. Let’s ignore the requisite consulting fees for now, because they’re the same for both scenarios. That exact same system in a SaaS environment will cost me $26,000+ per month after you factor in added bandwith, machine upgrades, etc. That means in 29 months, I have broken even in both scenarios. Even in a double declining depreciation model, it’s clear the winner is to buy the equipment and the licenses. Bean counters will reach into their dusty GAAP tomes and feed you all kinds of lines about how renting is better than buying, but I’m still not convinced.

    So where does this leave us? Some companies are making do with a FOSS strategy, but the open source community seems to be too arrogant to get out of their own way. I wish they would get some traction because then we could truly stop viewing software as a “thing” and more as a service, just as transient and soulless as I am.

    Good stuff!



  2. […] This post was mentioned on Twitter by David Damen, Dani Pardo. Dani Pardo said: Nobody is paying you for your code | The Single Founder http://t.co/hMoINGO via @AddThis […]



  3. Off By One # 8 | Off By One on November 5, 2010 at 9:02 am

    […] Nobody is paying you for your code | The Single Founder – Mike Taber, the value is in the solution , not the code. […]



  4. celebrity_depression on November 5, 2010 at 10:58 am

    I agree with Chad Harper, even though you make a great point that we’re not buying code, I don’t think SaaS is the answer either. I am as astonished as you are that these companies get away with it… Something must be done.



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