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The Recurring Technology Services Model Comes Home to Roost... Kinda

The service model can be thought of as (1) hardware services and (2) software services.

1. The most basic service to duplicate is the web-hosting and data management(storage/bac... recovery). Some may put the fancy term "business model" on it, but basically, in the hardware space particularly, someone needs to buy (finance) equipment and essentially then rents it out. (some companies will buy your equipment and then lease it/other equipment back to you)

2. Renters should look for long-standing providers, and sign shorter duration contracts. Renter pays at rate R, but as new customers come on board they are put onto the older equipment or less costly newer equipment, so the price per unit drops, yet the original group of renters is stuck paying the higher rate. Example: thing Gb of storage ... the cost per Gb has been declining, so long contract means you're stuck at the higher $ per Gb , so longer contracts are somewhat like buying that equipment.

3. Oh, wait, oh, now the contracts get re-negotiated (Before the End of the Term) by the buyers smart enough to realize what's going on ... in some ways it's like that mortgage with negative equity so why keep paying the monthly mortgage payment ("re-finance" it, by finding another provider now) ...look for margins to fall.

4. Oh, wait, financing costs (assuming debt) have risen, and if by equity then there's dilution of existing shareholders.

5. Software applications can be of greater value, but there are many applications out there and more being developed by the day. Some are given away for free to entice customers. CRM has an advantge here. Netsuite has an advantage as they want to write a suite of software for everything an office needs, but as a service.

6. Scale, capital outlays, as the author indicates, are a major concern.

Do your due diligence.