In the world of corporate America, there is a particular breed of
individual who would be drawn to a software application with a revenue-based
pricing model. This type of person is someone who is confident, often
arrogant, and most certainly narcissistic. These are the same individuals who
would look at the price tag of a luxury car and think to themselves, “that’s a
bargain,” without ever considering how much money they are actually
spending.
The software vendor who offers a revenue-based pricing model is operating
under the bold ideology that any increase in the customer’s revenue is directly
related to the use of their software. This is an incredibly arrogant
assumption and one that is not always backed up by reality. It takes more
than just software to make a business successful, but the software vendor
seems to believe that their software is the magic bullet.
The people who sign off on such an agreement are sadly leaders within a
company. They are the ones who have the authority to make decisions and the
power to influence others. These individuals are often confident in their
abilities and are not afraid to take risks. They are the type of people who
believe that if they invest in the right technology, success will
follow.
However, what happens when the customer’s revenue sees a decrease? Does the
licensing cost decrease as well? Unfortunately, the answer is typically no. The
software vendor is still entitled to the same amount of revenue, regardless
of the customer’s financial situation. This can be a real problem for
companies that are struggling to make ends meet, and it can put them in an
even worse financial position.
The revenue-based pricing model is a tool that is used by
software vendors to extract as much money as possible from their customers.
It is a model that is used by the arrogant and narcissistic, and it is one
that is often signed off on by leaders who are inexperienced yet confident in their abilities
and are generally reckless. The reality is that this model is often
not in the best interest of the customer, and it can lead to significant
financial problems for those who are not prepared for it.
The Narcissistic World of Software Licensing: When Revenue is the Only
Thing That Matters
Revenue-based pricing models are often agreed upon because they offer a
perceived benefit to the customer. The software vendor promises that their
software will increase the customer's revenue, which in turn will increase
their profits. This perceived benefit can be a powerful motivator for
leaders to agree to a revenue-based licensing model.
Additionally, revenue-based pricing models are often seen as tolerable or
acceptable because they are marketed as a way to mitigate financial risk.
The vendor promises that their software will increase the customer's
revenue, which will offset the cost of the licensing fee. This can be an
attractive proposition for companies that are looking to maximize their
profits.
Another factor that makes revenue-based pricing models tolerable is the
lack of alternative options. Many companies feel that they have no choice
but to agree to these licensing models because they believe that the
software is necessary for their business. In some cases, the software may
be the only solution available for a particular problem, making it
difficult for companies to resist the revenue-based pricing model. If this be the case, then the company would be much better suited hiring a team of developers and build their own solution. Conventional wisdom has it hard to believe that the software in question would be so unique that it could justify a revenue-based license, given Marc Andreessen's famous quote "software is eating the world", it sounds like more due diligence would be needed to fully vet the software options available.
Revenue-based pricing models are often agreed upon because of the
power dynamic between the software vendor and the customer. The vendor has
the upper hand because they are self-promoting a product or service that is in
high demand, while the customer is often in a weaker position because they
need the software to run their business. This dynamic can make it
difficult for the customer to negotiate favorable terms, and it can result
in them agreeing to a revenue-based licensing model that is not in their
best interest.
The Unjust Rewards of Revenue-Based Licensing: When Software Vendors Get
Credit for Nothing
Imagine a manufacturing company that specializes in producing metal
parts for various industries. The company has been using a plasma cutter
for several years but is looking for ways to increase its efficiency and
revenue. They hear about a new and improved plasma cutter that can
perform 73% faster than their current device. Excited by the potential
benefits, they decide to purchase the new plasma cutter.
After integrating the new plasma cutter into their production process,
the company experiences a significant increase in revenue. The new
plasma cutter has increased the cycle times by approximately 61%, making
their production process much quicker. This increase in efficiency has
resulted in a significant boost in revenue for the company.
However, the manufacturing company has a revenue-based licensing
agreement for a software application that has nothing to do with the
increase in revenue. Despite this fact, the software vendor still
receives credit for the increase in revenue and the manufacturing
company is charged more in licensing fees. The software vendor has
convinced the manufacturing company that their software is directly
responsible for the increase in revenue, but in reality, it had nothing
to do with it.
This scenario highlights the challenges of revenue-based licensing
models and the dangers of accepting such agreements without thoroughly
understanding the potential consequences. In this case, the
manufacturing company was penalized with higher licensing costs despite
the fact that the software had nothing to do with the increase in
revenue. This situation highlights the importance of understanding the
technical details and potential pitfalls of revenue-based licensing
models before agreeing to such an agreement.
The Dangers of Revenue-Based Licensing: A Call to Action for CEOs
CEOs should be wary of revenue-based licensing agreements and the
potential consequences that come with such agreements. If your CFO or
CIO has signed off on such an agreement, it may be time to reassess
their competence and consider repurposing them to tasks better suited to
their level of experience and understanding. Revenue-based licensing
agreements can lead to unjust rewards for software vendors and penalties
for consumers, making it imperative to thoroughly understand the
technical details and potential pitfalls before agreeing to such an
agreement.
If you find yourself in the midst of a revenue-based license, it is
important to take immediate action to plan your exit route and free
yourself from the deceitful and greedy behavior of these slimy software
licensing agreements. The best course of action is to seek out
alternative licensing models that are more fair and more equitable to
both the software vendor and the consumer. By doing so, you can protect
your business and ensure that you are not paying for something that has
no direct impact on your revenue.
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