Another tidbit that David Skok (JBoss VC) gave at OSBC was that the JBoss support renewal rate was 85% (likely at the time that JBoss was sold to Red Hat).
It seems strange that a customer would buy support in year 1 and then decide not to renew the support agreement in year 2. Remember, 15% isn’t chump change. An 85% renewal rate means that you have to “grow” 15% just to stay flat with your previous year’s # of customers, or potentially, revenue. In most software markets, 15% is about 1.5x or more of the market growth rate.
Why didn’t the 15% renew?
1] The OSS product is no longer being used, in favour of a different (OSS?) product
2] The application running on the OSS product is no longer required
3] The level of support that a paid subscription/license provides didn’t meet the customer need (either because of under utilization of support or under-delivery of the support experience)
4] Something else?
You can’t do much about #1 or #2, although you’d hope that growing use of OSS, and in particular, your OSS product, would ensure a near 100% renewal rate with customers you already had.
But #3 appears to be a much larger concern. What happens when 15% of your current paying customers decide they can use your OSS product without paying you a dollar. Worse still, these are users you convinced to buy support/license from the mass of non-paying users. Customers surely realize that their support/license payments enable the OSS vendor to continue developing the product in question. Sure, you get some free development from the community, but 95%+ is still done by the vendor’s employees. What happens when more and more customers pass the “pay for continued development” buck and simply become users???
Traditional software renewals rates aren’t 100%. But you’d expect higher than 85% from OSS, since conventional wisdom tells us OSS tracks closer to customer needs and does away with the ‘pitfalls’ of the traditional software business model.
06.04.07 at 1:13 pm
You can improve on #1 and #2 by doing other things that drive continued use of the product, such as customized specific solutions. This can either be by yourself or via a partnering scheme. That is, you drive demand for product by engaging in business activities outside the direct sale or support of the product itself.
Bob Sutor
06.04.07 at 8:21 pm
Great point Bob.
I didn’t mean to imply that OSS vendors should take #1 or #2 lying down.
I was trying to differentiate between challenges that are software market wide (#1 & #2) and OSS software specific (#3).
06.07.07 at 12:31 am
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07.19.07 at 4:48 pm
Thinking about renewals in a productive fashion
Matt Asay realises the “support” model is broken in an Open Source economy.
Or at least buggy.
In Thinking about renewals in a productive fashion
he starts wondering with Savio Rodrigues
What happens when 15 percent of your current payin…
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01.19.10 at 10:13 am
[…] I remain convinced that support is not a scalable business model and does not address the issue of customers reverting into free users. The largest and best known open source vendors have shifted away from support subscriptions to […]
07.11.10 at 10:04 pm
[…] que David Skok (inversor en JBoss) dio en la OSBC en la cual dijo que cuando RedHat compró JBoss el 15% de los clientes no renovaban las licencias anuales de soporte. Es decir, el 15% de los clientes que empezaron pagando, simplemente decidían continuar usando el […]