I talked last week how the license commission structure can hurt customers. There were a LOT of great comments and insights from the product side. Would love to have customers and consultants chime in on their feelings, but I can’t have everything.
There were two comments that I wanted to address in more detail. The first was that money isn’t the only driver of behavior for people. That is very true. That said, all else being equal, ask yourself this question: Who will a sales person go talk to first? The company that will help land a commission and meet quota, or an existing customer?
The fact that money is not the sole motivator of behavior is not something to just be dismissed, but neither can the impact cannot be discounted. The very existence of financial incentives will impact behavior. Let’s face it, when those incentives aren’t earned by an employee, those details show up in a performance review.
Now that I’ve thrown some debate points out there, let’s dive into the details of this post.
Beyond the Sales Curtain
I’m not going to touch the whole Investor side of the house because I have very little exposure there. I am going to focus on how multiple vendors take the obsession with license revenue a bit too far.
As discussed, license revenue is great, but it doesn’t measure success. I can sell as much as I want, but if half of my customers are gone in two years because my product isn’t improving, or is inadequate to begin with, it doesn’t matter.
The problem comes when companies take licensing metrics and use that information to start evaluating the product teams and setting Research and Development (R&D) investments. That can lead to some poor decisions.
My AnnoDoc Flashback
Way back when, I was a product manager for a small product called AnnoDoc. It was a simple annotation tool that grew out of a consulting engagement. It worked fairly well and I was able to get a few key partners into place to help with our sales.
I remember very clearly the day that we closed a landmark deal. It was the deal that pushed our Support revenue past the cost for the entire product team, including support staff. All we had to do at that point was defend our turf and use any additional license funds to increase R&D, improve our marketing, and add to our cash reserves.
The thing is, that isn’t what happened. That money went elsewhere and I had to fight for budget to grow and enhance the product. My budget was dictated by new sales, not existing customers.
In that environment, it was very tempting to develop new features at the expense of enhancing the existing ones. I managed to do both for a while, but the newer features were slower in development because of the resources I devoted to existing customers. This approach eventually cost me my job when new management came in, saw a potential cash cow, and didn’t like my approach.
Two years and one sale later, it was widely acknowledged in the industry that the product was, at best, a legacy solution. It has been dying a slow death since.
The Real Impact
My experience is limited, but not alone. I have seen the chase for the new feature while the core is left to slowly decay. I have seen some products linger while new, add-on products are introduced.
This is a massive problem faced my many older vendors. To drive sales, R&D is funneled into new features to stay ahead of competitors. Older features, like the ability to scale and not crash, get neglected once they are “solved”. When you take a product that is over 10 years old, that can lead to large pockets of very old code.
Of course, there is always the desire to sell to existing customers. What do you get a customer that has everything? How about a new product that seems like a natural add-on to the existing set of products. Instead of a product that is steadily becoming more feature-rich and capable, customers have to buy new features.
Eventually customers move on to another vendor that is “bundled” and they repeat the cycle. The only difference is that, unlike a mortgage refinance, you don’t really get to skip a year of paying maintenance. In fact, customers usually have double payments until migrations are completed.
This entire process is aggravated when Product staff are incented by license fees. If you incent by maintenance fees, they still want to sell to grow, but they also want to work hard to keep existing customers.
It is quite simple, it is a mess. The ongoing revenue stream should measure the success, not the one-time fees that means that you got engaged. It leads to products that are less complex to purchase and companies that want to keep business even more than winning business.
There are other aspects as well, so chime in and offer your viewpoint. My next post on the topic will discuss how all of this license fee focus is preventing ECM vendors from moving forward.