Not all revenue is created equal

Fred Reichheld coined the term “good profits” in his book Ultimate Question. His point was in pursuit of financial goals we often focus on certain fees (and related profits) which actually turn off customers and lead to dissatisfaction and worse. Lord knows we have plenty of examples of “bad profits” at airlines, banks and telcos.

I have a slightly different take when it comes to technology markets. There is old revenue and new, innovation generated revenue. The poster child is Apple.  The iPhone has gone from zero to half of Apple's revenue in less than 4 years. When you add iPad, barely a year old, you get even more of revenue which is new, innovation generated.

Contrast this to SAP, Oracle, Verizon, IBM and so many other large technology vendors. SAP has been talking in-memory applications and its BYD SaaS product for almost 5 years now, and related revenue is less than 5%. Oracle has been talking Fusion apps for over 6 years and it only has 50 or so customers. IBM markets the heck out of its “Smarter Planet” projects, but most of its revenues come from decades old Lotus, Tivoli and other software and data centers that often go back to the Cold War times. Verizon spends a disproportionate amount of its advertising budget on its 4G LTE offerings, when that is less than 1% of its revenues. There are plenty more examples in techland.

Part of the challenge in these vendors is they cannot let go of older revenue. So their field keeps being incented to sell what they are comfortable with, and innovation product groups get lip service and no real power.  Dennis Howlett called me over the weekend puzzled about John Wookey’s decision to leave SAP. He hoped I would have some more G2 – when John had decided to leave Oracle 4 years ago, I was one of the first to blog about it. Much as I respect John, I told him to the SAP field he or his On-Demand products did not matter as much as we would like to think – they are happy selling old ERP.

It takes an Apple (and historically Intel) to actively develop and launch new products, and not worry about cannibalizing older revenues. Often, older product revenues continue to flourish as the innovation halo from newer products gives customers more confidence even about the older. But the only way to find out is to give customers the choice of newer technology. Too many vendors are afraid to give their customers that choice.