Software vendors are turning into service companies. They are migrating from the lucrative business of selling software licenses into the much less lucrative business of supplying programmers and consultants to business customers. Software product companies are going through major pains as the industry is trying to consolidate and the companies struggle to show good revenue run rates - shortage of talent, poor product engineering and revenue allure make product companies look at revenues through professional services - but these have gone to alarming levels - high enough for investors to be concerend and important enough to be a factor in bringing down P/E ratio of product companies. Think of these - BEA service revenue is 48%(61% GPM), Oracle 66%(70% GPM),Peoplesoft 70%(54% GPM),Siebel 64%(44%GPM). The article highlights thaht GPM in services for product companies are less than the GPM in product sales and hence bring down the earnings. I was also wondering which professional service organisation in the world, including offshore companies can boast of a GPM of 60%? Interesting figures to watch and signs that big changes shall happen in the software product company space in the next 18 months.
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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld "All views expressed are my personal views are not related in any way to my employer"
