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> the revenue model of custom software dev firms Taking a cut of the economics of the transaction, just like giant software firms do. For example, the seller is an HBS grad whose buddy is a PM at Microsoft with permission to pay vendors - the buyer. Seller can't program but he can find young people who can. He knows there's a $400k budget for a Sharepoint search plugin, he pays 3x young people $66k each, pays out $50k in one time deal expenses (legal, kickbacks i.e. "illegal"), and is left with about $150k in profit on that deal. Some of that profit is used to pay back losses on previous projects, so net that year, a $400k project may make about $80k (i.e. 20%) for the seller personally. Net-of-50, maintenance, etc. - these are just narratives developed for the buyer's processes, to close the sale. You're in school, you should know that the way people come up with names for revenue is a narrative for investors and accountants, it's not a way to talk about economics (models). In this case the buyer has a lot of checkboxes and this shouldn't be conflated with a "model." Anyway, doesn't scale and that's why custom software dev firms are rarely big. When you look at stuff that does scale, like Pivotal or Accenture, there's something fishy with their economics. Or it's Red Hat, and they're actually not customizing much at all! |
Also, what exactly is fishy with Pivotal/Accenture? I mean they're services firms which is why their multiplier is relatively low but not sure what exactly is fishy?