Lumpy revenue streams

A manufacturer or retailer that responds to changes in sales in hours instead of weeks is no longer at heart a product company, but a service company that has a product offering.”
Bill Gates
, in his book, “Business @ the Speed of Thought.”

How often does an OSS vendor win a new sale? Is it in a timeframe of one a week? One a month? There sure isn’t the same customer base for OSS as there is for Microsoft’s mass-market products. But conversely, a single OSS order is likely to be far larger than a single Microsoft order (unless we’re talking volume licensing of course). The revenue models are far different.

This lumpy cash-flow model has been the death of a number of OSS vendors in the past. Their products may’ve been great but there were too few customers, taking too long in their sales cycles to keep their organisation in business.

Bill’s note above has a few interesting angles to it for OSS vendors:

  1. How can you make sales on an hourly/daily basis rather than weekly/monthly
  2. If you can, how do you find a way to monitor and respond to the changing nature of sales on an hourly basis
  3. If you’re a product company, how do you become a services company that has a product offering

There are at least two interesting OSS revenue models that are worth considering that are somewhat different from the norm. I’m sure you’re able to think up more.

One is fractional billing, where the customer is billed on a per transaction basis. By transaction, this could consist of a report generated, an auto-design run, a service entered, or even just on database transactions. The customer has the option of seeing the fractional usage and bill through a portal that also shows the corresponding business benefit derived through each of those transactions. For example, the customer may see their OSS bill hitting $1M during a given month, but this is offset by a demonstrated return of $5M. Naturally the customer would need to be instrumental in coming up with the calculation of the return. 🙂

The other is a slight variation on a traditional managed service, where the vendor provides managed services that are billed on value generated for the customer via the OSS (operational expenditure offset against value delivered) rather than a capital cost upon project delivery with no direct relationship to benefits.

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