RightNow zaps perpetual licensing, talks up smart client

On-demand CRM vendor RightNow Technologies has always insisted on giving its large enterprise customers what they want, even to the extent of offering on-premises installation and perpetual licensing to those customers that insisted — two options that most on-demand vendors would consider as anathema.

But as from this quarter, RightNow has decided to stop offering perpetual licensing. That's a big decision to take:"We think it's a game-changer for us" perpetual licenses brought in 12% of revenues in the last quarter and the company estimates it will miss out on $27 million it would have earned from perpetuals in the current financial year. But the proportion is down from a peak two years ago and CEO Greg Gianforte was bullish about the decision when I met him on a visit to London last week:

"The market has spoken," he told me. "I think the writing's on the wall for where the industry's going. This is the future of the software industry — hosted on a subscription basis."

There are three benefits for the company in making the move now, he added:

• It's easier for customers to reach buying decisions.
• It gives RightNow better operational focus.
• It gives clarity to the equity markets in their ability to analyze how RightNow's business is doing.

The final point is certainly the clincher, and RightNow's stock price reacted well to the announcement last month. Although the other points have some merit, they probably apply even more to the on-premises option. Even though RightNow is saying no to perpetual licensing, it will nevertheless continue to support on-premises deployment for customers that want it, an even smaller minority, at just 6% of revenues, than the perpetual license crowd. From now on, however, on-premises deployment will be available only on subscription license terms; and I suspect RightNow will not be making much effort to promote it even then.

But that's not the only sense in which RightNow's software is deployed on-premise. The big news this month for RightNow in product terms is the new Release 8.0 of its software, which went on general availability in the US last week. This is a major architectural upgrade and one of the most distinctive features is a 'smart client', written to Microsoft's .Net Framework and which runs on the user's PC. Again, although many of RightNow's rivals regard such a notion as anathema (personally I am more sympathetic), Gianforte feels it's just right for the large enterprise accounts the company targets. With a similar look and feel to the Microsoft Outlook client, the average Office user requires very little training to get up to speed, he claimed.

"We think it's a game-changer for us," he said. "When you're putting out an application that is the primary operating environment [for someone] like a call center agent, you've got to use something like a smart client. You've still got the flexibility and cost of ownership of on-demand but you get the power and functionality of a desktop client."

Gianforte was also feeling confident of the company's market positioning, with a recent analysis showing that 48 of its top 50 customers (all billion-dollar-plus businesses) make products that are B2C focused rather than B2B, whereas it is B2B sales that form the traditional target market for the likes of Siebel and Salesforce.com. He believes RightNow is carving out a niche helping such companies — which have traditionally sold to distribution and retail partners who took care of the end customer relationship — to get to grips with the demands of direct B2C customer relationships in the Web 2.0 era.

"The [B2C] distribution channel is collapsing," he explained. "Business-to-business organizations are having to develop business-to-consumer services channels they've never had to deal with before."

In particular, they need to develop online information bases and other help resources where consumers can find answers to pre-sales questions or post-sales queries. They also need to tie those online resources into the telephone call centers so that consumers don't have to repeat themselves all over again when they switch from the online interaction to a direct conversation. All of these are bread-and-butter capabilities for RightNow.

One closely related area where the company doesn't yet have an offering however is in ecommerce. Gianforte hinted that RightNow might be looking to plug that gap with an acquisition before too long. "As we think about our roadmap going forward, I don't see how we're not in ecommerce. But we're not going to go build something," he told me.