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Why “Royalty Free” Software is a Bad Idea

by | Jul 12, 2011

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