Google’s Revenue Model Serves as a More Useful Model for Mature ISVs Looking to Accelerate the Pace of Product Transitions

We don’t think mature ISVs (Microsoft®, Oracle®, and even IBM®) will benefit much from a study of products sold by pure cloud offers like Salesforce.com. The problem is the comparatively small amount of revenue, and high operating costs produced by these public, and even private cloud products. It’s simply not possible to run a business of the magnitude of any of these mature ISVs on a product mix like the one offered by Salesforce.com.

But Google is another story altogether. A glance at their 10-Q for the quarter ending June 30, 2013 shows a substantial amount of revenue — $11.8 Billion — in actual sales for this quarter. Sure, 90% of this number was produced by Google’s click advertising products, but there is no question the scale of these sales can certainly keep most of the mature ISVs afloat and even chugging along. So how does a Microsoft® build a comparable product, meaning one capable of producing a comparable magnitude of revenue?

We wish we could point to the Bing Search Engine, but the history of Microsoft’s efforts to capture market share from Google in the search arena over at least the last three years, if not longer, has been less than inspiring. The internal apparatus of the business, meaning the sheer mass of employees at Microsoft, and the internal silos to which they belong, is just to big and entrenched to permit a product like Bing to succeed. Bing is a card worth holding onto. Any reorganization of the business, which will likely accompany the appointment of a new CEO to replace Steve Ballmer, may actually free this product to compete more effectively with Google’s search engine and click advertising system.

We don’t have an answer to this question of how mature ISVs should model products and marketing strategies after Google. As is often the case, it will likely be very helpful for each of these businesses to study, as best they can, customer attitudes about Google’s click advertising products and their related behaviors. If a mature ISV like Microsoft can build a Software as a Service (SaaS) product capable of magnetizing similar responses from customers, they will certainly be well along the way of the transition to the kind of different revenue model they’ve publicly stated they’re after.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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