I speak and write frequently about
- how the enterprise-software market is more about maintenance services revenue than product revenue
- that enterprise-software maintenance service is more about content than fixing things, and
- how you shouldn't invest in the enterprise-software market without following the maintenance services money trail.
I've been making these speeches and writing reports and blog posts about these subjects for 20 years and am pretty frustrated about how hard the real revenue flow is to explain to people. For me at least. Investors still want to get all excited about a single quarter's new product revenue or last week's hottest technology buzzword.
Then -- thankfully -- along comes the privately held Rimini Street with a January 11 press release on its 2010 results that should make the issue crystal clear to investors. I'm off the hook. Here's how Rimini explains its revenue flow:
"(Rimini) exceeded $25 million in annual revenues for fiscal 2010 (ending December 31, 2010)...
"Sales booking backlog increased from $149 million to $220 million... (in other words, almost 10 times most recent annual revenue)...
"Rimini Street's average contract term increased 22 percent from nine to 11 years (that's "years" and I wish they had put it in upper case to make my job even easier)...
"Client retention rates increased for the third consecutive year to more than 95 percent..."
The way it works for Rimini Street is how it works for Oracle (ORCL) -- which is why Oracle is suing Rimini -- and SAP and most of the other leading enterprise software suppliers. It's a little different for IBM because of the interconnection between its services revenue streams and its management consulting business on one hand and its legacy "mainframe rental" business on the other. (But it's almost totally different for Microsoft (MSFT) because it has historically sold software either literally or virtually shrink-wrapped (what you see is what you get; no almost automatic add-on revenue for years guaranteed)).
So in general, when in doubt about how the enterprise-software market works go back and read this Rimini Street press release.
-- Dennis Byron
(no financial interest in companies mentioned)