DATA POINTS: SERVICE REVENUE CONTRIBUTION.

Professional services have become a significant source of revenue for high-end PC software companies. Currently, 25 public Soft[yen]letter 100 firms break out service and licensing revenue as separate profit centers; for these companies, services contribute a hefty 28% (median) of total revenues. Although a few companies use services as a loss-leader to support license sales, half achieve gross margins (service revenues minus cost of services) between 50% and 83%.

For Software Companies, Services Are a Growth Business

Total Service Service Service Service Revenues Revenues % COGS Gross% Click2Learn CLKS $34,733 $20,527 59.1% $14,444 29.6% Timberline TMBS $12,141 $6,800 56.0% $2,842 58.2% E.piphany EPNY $19,182 $9,021 47.0% $9,191 -1.9% Centura Software CNTR $51,030 $23,261 45.6% $3,900 83.2% Great Plains GPSI $194,852 $88,577 45.5% $34,407 61.2% Red Hat RHAT $42,428 $17,161 40.4% $9,071 47.1% Rogue Wave RWAV $53,104 $20,710 39.0% $7,306

64.7% INSO INSO $64,680 $23,899 36.9% $11,948 50.0% Concur Technologies CNQR $37,013 $13,011 35.2% $16,653 -28.0%

Interact SLGX $36,295 $12,290 33.9% $7,872 35.9% Network Associates NETA $683,668 $209,571 30.7% $37,726 82.0%

NetManage NETM $79,200 $22,673 28.6% n/a n/a Eagle Point

EGPT $14,559 $4,099 28.2% n/a n/a NetObjects NETO $22,215 $4,960 22.3% $4,408 11.1% Accrue ACRU $18,864 $4,183 22.2% n/a n/a MathSoft MATH $28,603 $5,900 20.6%

$1,785 69.7% RealNetworks RNWK  $131,242 $26,466 20.2% $6,579 75.1% Omnis Technology OMNS  $6,210 $1,212 19.5% $ 277 77.1% Phoenix PTEC  $125,826 $22,500 17.9% $18,344 18.5% Allaire ALLR $55,163 $9,608 17.4% $7,480 22.1% Media 100 MDEA  $51,479 $8,855 17.2% n/a n/a Novell NOVL $1,272,820 $180,710 14.2% n/a n/a Inprise INPR $174,806 $24,256 13.9% $22,676 6.5% White Pine WPNE $12,002 $1,287

10.7% n/a n/a MapInfo MAPS $74,356 $6,187 8.3% n/a n/a Median 28.2% 48.6%

JUPITER COMMUNICATIONS analyst Cormac Foster on the growing importance of good customer service: "You can't compete with price all the time, or you'll lose. You have to give your users a better experience." (Quoted in Information Week, 5/15/00)

RED HAT chairman Bob Young on his company's services-oriented business model: "We're changing the payment model--we're not changing the value proposition for the customer. You're buying subscription services to the latest version of Red Hat, you're buying technical support services, you're buying engineering services. When you come to think of it, Microsoft provides a lot of these kinds of services, only they charge you for it in the form of a per-machine royalty. Our model is more pay-as-you-go." (Quoted in Computerworld, 8/28/00)

"IN SEARCH OF EXCELLENCE" author Tom Peters on the importance of building a flat organization for e-commerce: "You need to insanely share proprietary data with your partners. Unfortunately, I don't know one Fortune 500 company in 200 that is capable of doing that." (Quoted in Infoworld, 9/25/00)

ORACLE ex-president Ray Lane on his company's original customer-hostile culture: "When I came in, Oracle had no management rules, no disciplined sales service, and was a society of internal backbiting and rule-breaking. Everyone inside Oracle thought we were the greatest company in the world. No one bothered to ask the customer." (Quoted in the Red Herring, 10/00)

NETSMARTAMERICA.COM president Bernadette Tracy on a new study that shows customers are less fearful about credit card and privacy issues on the Web: "Security concerns are virtually evaporating. Convenience outweighs the hypothetical concerns." (Quoted in iMarketing News, 7/24/00)

FLYING CROCODILE president Andrew Edmond on American Express's decision to stop handling transactions for porn sites because of their high rates of disputed claims: "There is no due process, no way that we can sit down and go through a government process to change policy. We are Internet citizens on the same Net with Amazon." (Quoted in Wired, 9/00)

MASTERCARD senior vice president Joel Lisker on the challenge of guaranteeing the validity of Internet transactions: "We're looking at using fingerprints, voice prints, or even an iris scan." (Quoted in the Wall Street Journal, 9/19/00)