Back to Basics or Face the Consequences: COVID Impacts Linger On

Every organization, from the smallest nonprofit entities to the trillion-dollar behemoths dominating the historic landscape south of San Francisco, recognizes that tomorrow is not guar­anteed. In the early days of this decade, the world’s governments put the world economy into existential peril as they attempted to “lock down” public interaction, resulting in the world’s econo­mies shutting down. Even when the most destructive restrictions were loosened, there was a considerable amount of less onerous restrictions which lingered on for many months.

Consider a conversation that might occur if we could magi­cally use Dr. Brown’s Delorean to rocket back to the time of the Medici dynasty and interview any of the patriarchs, Giovanni, Cosimo, or Lorenzo, on what they had in mind when they employed what we now call micro-finance and effectively created modern “free enterprise.” One thing they would warn us about is never to allow the system to stop or even pause because the econ­omy is designed to run on thin margins as a machine of perpetual motion. They would implore us time travelers to understand that motion was life and that ceasing that motion would result in per­ilous and dire consequences that would envelop all of humanity and might not be reversible.

Surprise. We, in 2022, get to see what that fictitious conversa­tion, fraught with warning, meant. For the first time in history, the history of free enterprise economic entities did not consider their never-ending perpetuation as their paramount if not sole objec­tive. And, of course, hundreds of thousands of businesses did not survive. Most small companies didn’t disappear; they were con­sumed by more significant entities that could absorb enormous losses. However, in the economic environment moving forward, there will be a new business that will fill vacuums left as the apocalypse fades and new dangers that even the most powerful of the Silicon Valley mega-companies need to protect themselves against. Therefore, it is time to get back to basics. Customer service, sound product development, and revenue optimization on those goods and services that constitute any company’s core competency is the new innovation.

Number-One Job of Any Organization Is to Survive

President Ronald Reagan once stated, “We have long discovered that nothing lasts longer than a temporary government program.” There is much wisdom in these words. The number-one job of any organism is survival. For example, a virus that kills its host will not last very long, which is why a virus, or any pathogen, evolves to living with the host as opposed to causing the host’s demise, though it’s not guaranteed. We are currently observing SARS-COV-2 become more contagious and less deadly, optimizing its chance of survival. Applying this rule of survival to businesses is obvious. Any business must generate revenue to survive and thrive. The global response to COVID has effectively been a pro­verbial slap in the face to companies in all industries. To optimize the potential of survival, companies had to find different and inno­vative ways to diversify revenue generation. Technology companies could count on their tech-support renewal business to gener­ate a predictable yearly 3% increase. However, in 2021, Oracle support increased to 4%. We are now hearing rumors Oracle support will soon announce a significant increase, allowing the company to generate 8% annually on its annual support renewals. There is a point where the yearly support increase will overtake the software’s current list price, and of course, there is a point in which customers will stop paying. The renowned economist Art Laffer showed that there was an inflection point with federal taxes as well. That is, a sufficiently high rate that the aggregate revenues collected would decrease. That axiom is called The Laffer Curve.

A recent survey by DBTA, sponsored by LicenseFortress, soon to be published, will show that software audits saw a sharp increase last year. Those audits parallel the increase in support costs and are no doubt a precursor to sharp increases in the licensing cost of the world’s most valuable software products. We won’t speculate in this article, but we will no doubt revisit the subject within the next 12–18 months.

No one should be surprised by these actions. Oracle price increases represent an industry trend shared by many other soft­ware providers. Many of these companies’ sales saw a precipitous downfall over the previous 2 years. These companies are looking for approaches to offset the lost revenue. The modus operandi for many organizations is to turn toward the existing customer base and find ways to squeeze more revenue out of them. Support renewals and software license audits are the low-hanging fruit.

Tech companies will continue to push the software as a service model (SaaS) on customers; it is a predictable, recurring revenue model that is both insulated from world events and highly profit­able. The best part for the vendor is that when the customer stops paying the bill, they lose access to the software, unlike a perpetual license model. In the case of SaaS, the burden of payment collec­tion is lifted from the vendor as payment becomes a requirement for the customer to continue using the licensed software product. It is difficult for customers to shut off the spigot of payments to the vendor.