Why “Royalty Free” Software is a Bad Idea
In the software library business, including open source libraries, a software developer can often find a software plug-in or library that enhances his or her application without building that piece from scratch. You can enjoy the fruits of someone else’s effort in a specialty that you may not know or enjoy working with. That’s what open source is really all about. Why should everyone re-invent the wheel when someone else has already put the thought, creativity, research, development and debugging effort in to create something others can readily use?
I like the open source initiatives. There are a lot of dedicated people putting in real effort to leverage their skills for the improvement and benefit of the community. But they’re not in it for the money – it’s for the reward of accomplishment and community service. I’m not knocking that but most of those contributors have a day job that pays the rent and the electricity. People writing open source libraries don’t make money at it.
So how does that compare to royalty free software? Same thing – you can’t make money at it. For those of you only familiar with the application software model, the concepts for development tools are different. In application software, you sell by the unit – number of users or number of servers. In software libraries intended to be redistributed with a software developer’s application, while the software developer gets paid by the user or server, there’s a natural reluctance to pay part of that revenue (royalties) to a software library that provides only a portion of your application’s functionality. So when someone advertises a library that’s royalty free, it’s naturally very appealing. Just pay once and use it forever, and wherever. Send it out to 10 people or a million – the cost won’t change.
So what’s wrong with this picture? Well, for one, where’s the continuing revenue stream for the library vendor. They got paid for the original purchase but they get nothing more. So do they have any reason to care if their product works correctly, or whether you’re satisfied? Not really – because to survive, they need to keep selling, and you’re not going to buy anymore (you already have it forever). And software doesn’t wear out like hardware, so they can’t even expect you to come back for an upgrade except in special circumstances.
So how do they survive? Most do so by finding new customers. Except in the software library business, there’s a limited market. Only certain companies or people need your product. Once you’ve sold them your royalty free product, they’re done….and you’re done. Royalty free businesses can’t pay their bills unless their market is huge or their costs are low. And for sophisticated software, that plan just doesn’t work.
I introduced royalties to our products more than 18 years ago. No company that existed in our business at that time survived if they were royalty free. Meaning no software tool company depending on selling royalty free software could be competitive or stay in business. Let me state the obvious – if your product depends on a 3rd party vendor, you need to care that they’ll be in business for many years into the future (and that they’ll still pay attention to your needs – a topic for another blog). Look at our customer list – it’s the Fortune 2000 as well as a lot of smaller companies and large global OEMs. They all build mission critical applications in the most demanding and regulated markets such as banking, insurance and health care. They recognize the value of a partner that stays in business for the long haul – someone they can depend on. And they recognize that their partners need to earn a living or they won’t be around for them and their future needs.
So what’s royalty free software worth? …………. That’s easy; it’s worth what you paid for it.
Differing opinions? I welcome them. Contact me
Simon
Did you love this post?
Then please share it!
July 13, 2011 at 1:30 am | Surajit Basu
“what’s royalty free software worth? …………. That’s easy; it’s worth what you paid for it.”
I differ.
how much did you pay for the browser? and why is Linux a bad choice?
there are business models other than those driven by royalty. and hence it works.
we are seeing many Fortune 500 clients go for open source solutions.
July 13, 2011 at 10:28 am | Imaging Developer
Hi,
I honestly have some objections and remarks concerning this blog addition:
1. You claim that Royalty Free Software Providers do not guarantee functionality on the long run. Here, two points come to mind:
- Evaluation Periods Imaging SDKs usually offer, where they respect the customer to make him make an informed decision.
- Second, I fail to see how you could jump to such a conclusion, when you must know that the Software Industry is an always changing business, and what works today will definitely need to change tomorrow except for some very small cases.
And yes Royalty Free Software providers do care about customer satisfaction, because unlike what you have mentioned, most of their clients -at least the two imaging SDK providers I have worked with – ARE returning customers.
2. I read that you believe upgrades and updates in our business are mainly governed by the marketing team to “convince” customers of investment in the toolkit thus justifying their dollars in support. The problem with such a hypothesis -which i am sure some companies do follow- is that it brings to attention that those company’s main revenue and business model even development cycle depends on SUPPORT FEES. Meaning that those companies’ main commodity is Support for their products rather than their products themselves.
I honestly do wonder how that compares to your claim that Royalty Free Software providers will fail based on their business model!
We maintain our costumers through our upgrades becase our customers grow with us in this rapid growing field, they appreciate our growth because eventually it will help them do the same. Thus the force that drives our Research and Developement is that our customers need us to, and not for any other reason.
To sum up, I highly doubt that APIs that have constant updates, faster growth rate, evaluation and testing period, customer support, and most importantly bigger customer database and lower prices than most of their Royalty Based Software SDK providers shall fail on the long run, and I truly believe it both financially more viable and a safer bet to go with Royalty Free Tested Software APIs.
I hope this finds you well, and you appreciate this exchange between us.
Yours Sincerely,
GdPicture Employee
July 13, 2011 at 10:46 am | Bogdan
Just some common-sense notices :
1) the simple fact that you dedicated an entire blog article to this subject
seems to rather prove (despite your apparent confidence) you are
somehow concerned about “royalty-free” vendors ( believe me, I am not
one of them , although i wish I were, frankly…)
2) if royalty-free model is doomed, why pay attention to it ? Because the
market itself would eventually eliminate them all, according to your
arguments, isn’t it so ?
3) consider startups : money is their main problem.
How to further develop without most-convenient financial solutions at
hand?
4) I happen to have experience with some purely fabulous products
whose developers are applying the “royalty-free” model (of course, i will
not name them, for obvious reasons….).
What do you suggest : drop them and replace with “non-royalty-free”
products + spend lots more money and time just because there seems
to be an Implacable-Law-of-the-Universe-regarding-Royalty-free-model ?
5) Royalty-free model exists and thrives : this is a fact. How can this be?
I’ve made the comments in good faith and i respect your work and
achievements (the proof : I am reading your articles with real interest)
But I am really curious what you would think on the above.
July 15, 2011 at 2:50 pm | Simon Wieczner
I will respond serially to the comments:
a) To Surajit Basu: I was talking specifically about software libraries that are redistributed in narrow niches. I don’t count browsers and Linux as software libraries or narrow niches though I have some thoughts about them as well (you don’t believe that Microsoft or Google create their browsers without a business motive, do you? I know less about the Firefox motivation but it’s not a library or a niche market). And how is open source distribution a “business model”? I did mention that open source is community spirited and I admire that effort but I don’t know how it pays the rent.
b) Imaging Developer from GDpicture (not sure why you can’t give your name) – you make a lot of points but few are related to my article. Yes, there is always the possibility of something changing in the future but the basic facts that you need to generate revenue to hire people, rent space, buy computers, etc to grow a company and provide future development aren’t likely to change. Expert programmers don’t work for free. Additionally our customers want 24×7 support, fast response to their problems, continuous product improvement, legal protection against copyright and patent infringement and more – it just doesn’t happen for free and over the years, royalty free libraries have proven to be gimmicks to get people’s attention but not to have lasting power.
I know your company offers royalty free software and perhaps your experiment will work in the long run, but I just don’t see how you can afford to continue to develop your software in that manner. It would bother me a lot to have Microsoft buy my royalty free software and distribute millions of copies in Windows and my company would only get $1000.
c) To Bogdan: If the royalty free model works and thrives, why can’t you name the companies? If they’re in business, they can’t be secret. You have a point for startups – announcing royalty free is a big attraction and it will attract users, particularly smaller ones that can’t afford much. And with regards to your comment about why write this article unless we’re afraid of royalty free competitors, the fact is it comes up with some of our prospects and we’d like to educate them. They are free to make their own choice but I’ve got almost 40 years experience in the industry and I like to voice my opinions.
When our company was young and much smaller, and we had some almost royalty free products, we attracted a lot of smaller companies with shareware type products who couldn’t afford much. But those companies cost a lot in support and we didn’t get much in revenue from them. We only grew when we attracted the Fortune 2000 who demanded more but could afford to pay more. There are plenty of one person shops in the software industry but few of them sell mission-critical solutions to the world’s top corporations. We made the choice to work with the top banks, insurance companies, health care systems providers and top enterprise content management companies and they didn’t choose us because we were royalty free.