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Proprietary software is a...services business

Looking at recent earnings announcements, it may well be that open-source software vendors are making the most money from software while proprietary vendors retreat to services revenue.

Interwoven, a leading web content management vendor, just announced really good financial results. Vignette, another competitor, did not.

In both cases, however, I was fascinated to see how little of their revenue stemmed from license sales. License sales are supposed to be the lifeblood of the proprietary software model: Write the software once, monetize forever. Yet in Interwoven's case, license revenue accounted for only 37 percent of the company's revenue. For Vignette, it was even worse: 21.6 percent.

Compare this to a recent IDC survey of open-source vendors, which found that 63 percent of open-source vendor revenue stems from software, not services. In Alfresco's case, an open-source competitor to Vignette and Interwoven (and my employer), the percentage of software revenue is much higher. Much higher.

This would imply that open-source vendors spend much more time writing great software, thereby creating room for a healthy ecosystem of value-added resellers and system integrators to grow up around them. Proprietary vendors may increasingly be competing with their partners in an attempt to goose revenue upward as license revenue deflates (as Oracle's recent earnings suggest may be in full swing).

Indeed, given the incentive to drive services revenue, one could ask if proprietary software vendors even have an incentive to write software that is easy to deploy and maintain?

This is certainly not true of all proprietary software vendors. Microsoft, for example, is doing very well and makes a large percentage of its revenue on license sales (and maintenance). I'm sure there are plenty of other examples, including IBM, which despite transitioning most of its revenue to services and hardware continues to drive software license revenue.

But are these the exceptions to the rule? Are open-source vendors the last bastion of software sales, while the proprietary vendors retreat to services? Isn't this the opposite of what was supposed to happen?