When professional services and software mix
I blogged a little last year about the rewards and challenges of combining professional services and software in a mature company’s business model. My main example was Oracle. But other examples from Oracle’s history might have been equally instructive. For example:
- Oracle started out doing what amounted to custom development for government (military/intelligence) clients.
- Even when Oracle said it had productized its software, the stuff didn’t work very well without services to get it running.
- Oracle and Ingres both got a huge fraction of their early revenue* from deals to port their software to various brands of hardware.** That’s a lot like professional services.
- Oracle’s huge Tools Group grew out of professional services, if I have the story straight. Indeed, its first product was written by later long-time group chief Sohaib Abbasi when he was a consultant.
*Revenue recognition rules were rather different back then. Multi-million payments or guarantees for ports could be recognized as lump-sum revenue up front.
**Ingres once ran on more hardware platforms than it had employees, when both numbers were somewhere in the 40s. Most of the boxes on which the porting was tested were in one small office.
The benefits for a young software company of being in the professional services business include:
- It can be high-margin, especially if it shares the cost of sales with your software offering.
- It allows you to say “yes” to whatever the customer asks for. (More precisely, it takes you closer to that goal that you’d be without a service offering.)
- It allows you to fund capable staff. Or to put it even more bluntly …
- … professional services brings in revenue that pays your bills.
- It gets you involved with customers, learning stuff about their needs, and specifically addressing them.
The disadvantages of professional services generally boil down to various forms of defocus; you can screw up your development schedule, your development priorities, your sales priorities, your partnering efforts, your market positioning, your burn rate or just about anything else.
Many software companies pursue substantial professional services when they’re young. Many don’t. Both strategic choices can make sense.
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I’ve always strongly believed that for most software companies, they have to master the services side of the business as well as software. It’s not just a question of economics and the business model – it’s also a question of “delivering solutions”, as corny as that sounds!
But, as you note, being great at both software and services is a very tough balancing act. Each draw upon different gene pools and pull on the business model in different ways that are tough to blend. But, for most cases, getting this balance right is an important discipline and a way to increase profitability and the chances for long term success.