Open Sources | Rodrigues & Urlocker » Lessons learned in running a hosted software business (RightNow Technologies)

February 06, 2006 | Comments: (0)

Lessons learned in running a hosted software business (RightNow Technologies)

TAGS: Applications

I'm sitting in a fascinating session that Greg Gianforte (CEO, RightNow Technologies) is giving at the Enterprise Software Summit. (Small, intimate event. Really cool location - Sundance, Utah. I'm actually sitting in the screening room where Redford does his summer training course for the film director class.)

Greg has been talking about the nuances of building a successful hosted software business. Some interesting tidbits:

1. RightNow charges the same price for hosted or on-premise subscriptions. Somewhat counter-intuitive, since they have to invest a lot of money in the infrastructure for delivery. However, Greg indicated that their hosted customers are much better margin than on-premise customers, because the cost of supporting those on-premise customers is significantly higher. It's just cheaper to fix bugs when you've got the software with you than when you're trying to fix remote problems.

2. The on-premise to hosted deployment is a one-way path. None of their customers move from hosted to on-premise, but many move from on-premise to hosted (even governments and financials who insist at the outset that they'd never trust a hosted deployment for security, etc.).

3. Top four reasons that on-premise vendors won't successfully shift to a hosted model:
   • Architecture. A successful hosted model depends on leveraging multi-tenancy. To achieve this, vendors need to completely re-code their on-premise software.
     
   • Partners. The hosted model requires a very different partner ecosystem. Rip and replace.....
     
   • Financial model. A hosted model requires a different approach, which is highly disruptive to on-premise/license-only vendors. It's just hard (and potentially catastrophic to one's stock price) to shift to a pay-as-you-go or term model.
     
   • Culture. Traditional software with a 9-month implementation cycle delivers little value in a one-year term engagement. Hosted requires you to move faster, and think different, which is culturally difficult for traditional software enterprises.

Really interesting stuff. Thanks for taking the time to speak, Greg.

Posted by Matt Asay on February 6, 2006 04:02 PM

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