8 Enterprise Software Business Models Over Time

Enterprise Software business models continue to evolve. New models are driven by increased vendor competition and an increasing sophistication and choice by customers. Here’s a quick list of the primary innovations in Enterprise software business models:

1. Licensed: The initial shift from software services to software products with software licenses that enable the vendor to retain intellectual property and sell copies to multiple customers are a high margin.
2. Perpetual: The creation of a Perpetual License plus Support and Maintenance fees. Perpetual licenses had the benefit of being capital expenditures paid up front, combined with 20–30% fees as operating expenses, resulting in attractive +90% margins.
3. Open Source: The license to use and modify the software was free, and vendors and outsourcing firms charge for Support and Maintenance.
4. Hybrid Open Source: Combines a paid software product and a free open source project, plus the vendor charges for Support and Maintenance. Typically the deployment of the software reaches a certain scale that creates the demand for the paid product
5. Subscription: Software-as-a-Service combines the rights to the software, support and maintenance in a recurrent subscription.
6. Freemium: A recent innovation you see with companies like Intercom is enabling self-service in-app purchases, creating a third tier in a freemium (free, core paid product, additional paid).
7. Platform as a Service: PaaS is an extension of SaaS with rights to build upon the platform, to modify and extend the product.
8. SaaSnet: Combines a marketplace business model with SaaS. A new disruptive business model with the benefits of the subscription model with the power of network effects. I’ll write this up in a separate post tomorrow.

Photo by Andrew Neel on Unsplash