No. of Recommendations: 12
I'm not optimistic that a change is coming soon.

We have a great historical example of the consequences of being too slow to change the licensing model. It’s IBM and their OS/390 - z/OS computer platform.

The primary licensing metric has always been MIPS (millions of instructions per second) or a derivative of MIPS, MSU (million service units).

These measurements reflect the amount of computing power a machine has. The more power, the higher the number and price of the software for the operating system, applications and utilities used on the platform.

The first OS/390 computers were rated at just a few MIPS, perhaps 10 or so (I cannot remember specifically, but it was low). Today, the computers are rated with tens of thousands of MIPS.

In a nutshell, here is what happened:

The required annual MIPS growth to run the required workloads has compounded >30% annually and purchasing managers underestimated their growth rates by about 25%.

Things were okay up until 2000 when locked-in IBM shops had no choice and had to buy in preparation for Y2K. Even by then, the various Unix platforms were on their way to taking over many of the mission critical workloads, primarily due to price advantages of the platform.

By then, IBM had a large pricing organization whose main goal, in my opinion, was to squeeze as much out of the customer as possible.

The large team was necessary, because the company's structure and business model was dependent upon the profitability of the OS/390 business. The longer the pricing stayed based on MIPS growth the harder it was to shift away from it. Entire organizations were compensated based upon this model, which led to bad decisions and behavior. It was virtually impossible for anybody to come in and change how things were done.

Although this once ubiquitous computing platform is still important today, it lost its dominance to other platforms with better pricing.

Splunk will probably find itself having to create ways to keep the good times rolling without putting a big dent in its business. It’s likely that they are not well prepared to make a shift to the new realities of the industry. If everybody is dependent upon the growth model to earn a living, they’ll keep it until they cannot.

So it’s possible to see sales people as the first ones to feel the pain, because they’ll get a lot of pushback when they do deals, leading them to missing their numbers and then jumping ship. Then the business will have to start cutting down marketing and then development while sales cycles get longer and more difficult. The’ll have to start negotiating terms and conditions on a lot more contracts, consuming a lot mir time and energy for each dollar of revenue.

Highly negotiated contracts (especially perpetual license contracts) lead to interpretation issues on the next deal and cause even bigger relationship problems.

Hopefully, their management team could avoid this. But I’m not so sure they can turn the ship so easily at this time.

The SaaS model removes a lot of this, and I’m glad we have it in our companies now.

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