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The Impact of High Service Revenue Contribution on Corporate Profitability for ISV’s
Introduction
At an enterprise level, Independent Software Vendors (ISVs) are organizations that create and sell software products, often specializing in specific business needs or industry verticals. ISVs have traditionally generated their revenue through the sale of software licenses. However, the business model for many ISVs has evolved, with an increasing emphasis on service revenue for platforms requiring implementation, integration and support. While service revenue can provide a steady income stream, an over-reliance on it can have several negative effects on corporate profitability. This document explores the challenges associated with a high service revenue contribution and its impact on profitability.
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Background
Brand value and customer satisfaction is paramount to the success of ISV’s. Protecting the brand requires strict adherence to comprehensive implementation methodology demanding skills often years in the making. As the software author, ISV’s are closest to product functionality and roadmap. Customer success cannot be compromised as the installed base is key to expansion opportunities and net revenue retention (NRR). These factors have necessitated ISV’s to perform a bulk of the service work internally.