All my Answers are the BEST!

He says, tongue firmly planted in his cheek.  But, seriously folks, I have been doing this LinkedIn thing for a while and I find it to be an invaluable tool to find old friends and co-workers and to connect and network with others in my field.  A week or so ago, I decided to check out the "Questions" section and stumbled upon this question: 

Can open source software be used to create a successful business model and generate real revenue?

I found it to be right up my alley! It was asked by Angelo Varlotta, a PhD student from Purdue University.

Well, today I found out that he selected my answer as the "Best Answer".  Very cool.  He also sent me a nice email. 

So, I am 1 for 1 with question answering on LinkedIn.  I think I will retire now, undefeated!!!  lol

This Just IN: Postgres is FASTER than MySQL

Ok, for those you "in the know", you already know that this is true. But, it has been the conventional wisdom for a long time that MySQL is the faster database (at least for read-only environments).

Well, it seems that everyday there is more and more validation that MySQL is not a faster database. And here are some links:

Converted from MySQL to PostgreSQL - October 8, 2007

Postgres Publishes First Real Benchmark(SPEC jAPPServer) - July 9, 2007

Tweakers Database Test: Dual Intel Xeon 5160 - November, 13, 2006

We know that each environment is unique, of course. But, I think we can all safely say that Postgres can and does outperform MySQL.

So, what does MySQL bring to the table? There are comparisons all over the net. Pay attention to them, however, because many are outdated and compare older versions of both Postgres and MySQL. (This tends to hurt MySQL more).

A recent and fairly decent comparison was led by Greg Smith and the PostgreSQL community a month or so ago and can be found here.

But, for those of you without the time, let me help. Here are some benefits of using MySQL over Postgres:

1. With MySQL you aren't limited by those newfangled technologies like Multi-Version Concurrency Control (MVCC).
2. With MySQL, you are also not limited to those unbearable and strict rules of the calendar. You can easily add dates to February to make it conform to other months like February 31 (and January 32 for that matter).
3. With MySQL you get CHOICES. You can get Foreign Keys (InnoDB) OR you can have Full Text Search (MyISAM) OR
4. you can do clustering (NDB), but you have to choose only one because each of those lovely features is found in different storage engines.

I could go on and on, but I think you get the point. So, why is MySQL so successful? MARKETING. PostgreSQL is a true community with no company and thus no marketing engine behind it. All of the success of Postgres is through word of mouth or the companies around it like EnterpriseDB.

MySQL spends a lot of time and money marketing their offering. Its time for people to see through the marketing and go with the only REAL open source database, PostgreSQL.

Why Subscription pricing is better for you and your customers

In my last blog post, I talked about the hockey stick and I mentioned that changing the licensing model for software can help eliminate the hockey sticks in sales.

I want to talk a little more about the subscription model because I think it is the way all software should be purchased.

In a perpetual model, the customer pays a huge up front "license" fee and then a yearly maintenance fee, typically 20-25% of the license fee.   In a subscription model, the yearly charge is the same.  There is no up-front "balloon" payment.

Let's look at this first from the ISV standpoint and then from the customer side. 

What this means for an ISV:

1. PLUS:  In a typical subscription model, there is a recurring revenue stream generated that can be depended on year after year and therefore the business can be planned better.  There are less peaks and valleys because of a missed deal.
2. MINUS:  The growth rate is slower because ISVs do not get the initial spike of revenue from the license.
3. PLUS:  You may sell more because the yearly subscription is much lower than the up-front license, so therefore most companies can justify the expense. 

What this means for a Customer:

1. PLUS:  No capital expenditure.  This means the decision to buy is not left in the hands of the accountants and thus the software can be purchased faster.
2. PLUS:  Dependable budgeting because the price does not change from year to year.  Need to add more licenses?  Simply pay a little more.  No need to delay because of high licensing costs.
3. MINUS:  Depreciation is not really an option at this point.  So, if your accountants were counting on writing down that "major" software investment, no such luck.

It is taking companies time to come around to this model because it is not something they are used to.  The reality is that it creates a partnership between the ISV and their customer.  The ISV wants the customer to do well so they will continue to use the software and possibly need more.  The customer has not been raked over the coals and therefore feels better about the relationship with the ISV.

By the way, this is also very similar to the Software-as-a-Service model with only one exception.  In SaaS, the application is hosted. 

Hockey Sticks and the Software Business

Well, another quarter is "in the bag" and its time to take a breath and pause if only for a second...  

Now, get back to work and do it all over again. 

One of the most interesting phenomenon in the world of software is the dreaded hockey stick.  For those of you who are unfamiliar with this phenomenon, it is the seemingly unavoidable scenario that results in 98% of your sales coming in at the end of the quarter.  While this happens in many different industries, it is very prevalent in the software business.   Below is a chart that shows the hockey stick in action. 

Why does this happen?

1. The incentives of the sales team encourages it.
2. The fiscal quarter end of your company encourages it.
3. The fiscal quarter end of your customer encourages it.

The problem is that, in many cases, all of the above are aligned.  This alignment leads to the hockey stick.  Re-aligning the three items above can help to minimize the hockey stick, but it will not make it go away.  Companies have tried for years and they have paid consulting firms millions to avoid it, but it is almost impossible.

What does the alignment do? Well, for one, your sales people will do everything they can to close deals before their clock resets.  That means they want to pull in any deal they can before the end of their measurement period.  Some companies have tried capping the comp plan, but that is not a good idea because then sales get pushed out causing a whole new range of issues. 

The second and third bullets are linked together.  Most companies follow a fiscal year that matches the calendar year.  They know that you do too.  So, they know that they are likely to get the best deals if they wait until the end of your quarter to sign.  They know that you will pull out all the stops to close that deal.  Combine that with their fiscal quarter and you end up with a HUGE hockey stick at year end.  Why?  Well,they have budgets that they have been holding on to.  They need to spend that money before year-end or they risk losing that budget next year. 

The combination of two and three are catastrophic to both businesses and personal lives.  Businesses can't plan and personal lives are ruined due to the fact that everyone has to work twice as hard from Christmas to New Years (when everyone ought to be off).  Not to mention the stress and the heart attacks that it causes. 

How do you fix this?  I am not sure you can.  But, you can mitigate its impact.

1.  Change your incentives to sales people.  Don't give them all the same quarter.  Make Tom's year end in May, Leo's in August, Mary's in March, etc.  This way they are closing deals all year.  Is this a new idea???  You tell me.  I have never seen it done, but no one could give me a good reason why not.

2.  Change your fiscal year-end.  My first employer did this (QAD) to lessen the December 31 hockey stick and it worked somewhat.

The best way, in reality, to avoid this is to change your business model. Part of the problem is the way software is licensed.  The traditional software model of a huge up-front license fee and recurring 20% maintenance helps to perpetuate the model. 

If there is one thing to be learned from open source and software-as-a-service (SaaS), its that a subscription model is the preferred way to sell software. But, that is a topic for another day.