Tuple Labs Software Vendor Models
These are the models of software vendors we use as a starting point for defining sales strategies at Tuple Labs in Austin, Texas. We think of classes of companies in the space differently so that we can best fit our proposals to deliver high ROI and follow our client company business models. You may use this work as long as you comply with the license terms.
It should be noted that many service providers and companies fall into multiple categories, and that the lines are not as clean as defined herein. At larger companies, one often sees different strategic business units operating under entirely different paradigms. Many offerings have features that blur the distinction between these models - these are simple guideline business models.
Finally, this document not meant to be a highly scientific treatment of the different kinds of software businesses. It is meant to be an approachable introduction to different models for those looking to get a layman's understanding of the different ways these companies make money. The final goal is to sympathize with the vendors regarding their revenue models and understand how they make money (and hopefully make more).
- Classical Software Licenses
- Appliance Style Software
- Professional Services
- SaaS APIs
- SaaS UIs
- Professional Services + SaaS
- PaaS
- IaaS
- Data Subscription
- Data Enrichment
- License
In this model, the revenue is largely front-loaded into a single sale, in which the provider conveys one or more licenses for downloadable software to a customer. This model may or may not include a support fee element, which is an ongoing subscription to assistance using the software. This model is still very common for operating systems and fat-client applications like office software, or video games.
- Microsoft Windows/Office
- Console video games
- Smartphone apps
- Certain Oracle applicances
These are models in which the customer must pay ongoing fees to use software hosted on systems they are also responsible for - the selling company/provider does not host the software for the customer. This model almost always includes some significant amount of revenue from ongoing support contracts as well. The model shares characteristics with SaaS API companies, in that customers must pay a recurring fee for use, but diverges from SaaS by being similar to Classic Software in that the software is run on devices for which the customer is responsible. Very common model for on-site enterprise software, virtualization technology, proprietary database drivers, and other JeOS accompanied software for proprietary hardware appliances.
- Certain VMWare hypervisor licenses
- Many Oracle database drivers
- Some enterprise Microsoft systems
- Certain Cisco networking appliances' software
Simple consulting arrangement. There may be technology exclusive to the consulting firm that they leverage to produce software for the client, or software that comes as a free or cheap licence for client, but the vast majority of revenue comes from billable hours or projects. All project and revenues require a separate contract or statement of work. There is no self-serve component.
- Idean
- Tuple Labs
- Ideo
- Frog
- Razorfish
There are a few conditions to fall into this class. Firstly, the majority of revenue for the service provider comes from the use of a software interface not hosted by the purchasing client. Secondly, the revenue model is a metered one, either billing by-service-call, billing a chunk of money as credit up front (funding an account) and deducting against this value through metered usage, or a tiered model (user has a usage cap, pays constant below that). Furthermore, to fall under this classification, customers must be able to begin using the service without professional services assistance. The majority of modern providers are 100% self serve, but enterprise-class or older providers may still require a quote and contract style of sales process. Even so, a user must be theoretically able to begin using the API with no consulting hours after their account is activated. Finally, the service must only operate on documented, standard protocols (REST, SOAP...) over service calls - anything deeper, more specialized in integration/use, or more involved may fall under PaaS or IaaS.
- Twilio
- PubNub
- Google Maps API / Geolocation API
- Google Payments
- Stripe Payments
Distinguished from the API-only case by a focus on a user interface, where most interaction occurs, rather than an API, where interaction focuses on machine usage. The billing model is almost always per-user or oriented around the amount of usage a user interface of the service provider's design. There may be a suite of API tools to further enrich and extend the behavior of the system, but the focus is still on human-computer interaction. The vast majority of these tools are workflow automation oriented tools.
- Gmail / Google Apps
- LucidChart
- Microsoft Office 365
- Salesforce
- Atlassian Jira/Confluence/HipChat
While recurring revenue comes from SaaS API fees and/or SaaS UI fees, this type is distinguished by a very heavy consulting and professional services slant. If a non-trivial amount of revenue comes from SoW-style billing, or the software is not usable without some amount of white-glove professional services integration, this is the model. Most often seen with site augmentation, very common in e-commerce. There may be self-serve capabilities on some assets of technical integration, but even so, if there is a non-trivial amount of work that must be "turned on" from the provider's side/by the service provider's staff, this is the category into which we place the vendor.
- Bazaarvoice
- Edgecase
- BloomReach
- RichRelevance
A level above SaaS APIs, requiring deeper integration than SaaS APIs. While SaaS API companies communicate over a standard protocol, imply by-the-call integration, and typically do not inform design decisions of the customer's software, PaaS breaks these rules. PaaS generally requires some non-standard design decisions (picking naming conventions, metadata files in certain places). PaaS also implies that you are not paying by-the-call, but typically by hours of usage or some other duration metric based on consumption.
- AWS ElasticBeanstalk (web apps)
- Heroku (web apps)
- Salesforce Force.com (enterprise CRUD web apps)
- Parse (mobile backends)
Similar to PaaS in terms of billing by duration consumtion, but may also have standard by-call billing as well. Generally communicates over and supplies industry standard resources, such as abstracted services available over HTTP API calls, and rental of virtual machines running Linux or similar. IaaS tends to inform design decisions less and allow developers to be far less constrained, but also have less automation - as some decisions have not been made for you that would otherwise be made in PaaS. Generally, IaaS is a very light level of abstraction on top of hardware resources, in which the IaaS provider's value add is simply handling a lot of undifferentiated heavy lifting involved with ownership of hardware.
- Amazon Web Services
- Microsoft Azure
- RackSpace
- Google Cloud Platform
Simple model in which a provider supplies specialized or hard to acquire information for an ongoing or one-time fee. There may be an API or UI for consumption, but the value added process for the customer is simply the access to data they would otherwise not be able to acquire.
- Internet Retailers 500 list
- McGraw Hill (S&P) Data Services
- Bloomberg
- DataChimps
Often includes analytics companies or curation companies. The customer provies some base set of data that is not particularly useful by itself, either in batch or piecewise, and the service provider returns, either in batch or realtime, an enriched set of data based on what the customr provides. The value proposition is the ability to access more previously unaccessible or non-useful data in a useful manner, while still having proprietary and tailored data. This differs from Data Subscriptions in that in this case, the customers all have different data sent to them and the data is considered owned by the customer (instead of being licensed a copy of data owned by the provider).
- Google Analytics
- CrowdFlower
- Adobe SiteCatalyst (Omniture)
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