Computer Associates 2005 Annual Report Download - page 34

Table of Contents
Business Model
Customers face challenges when trying to achieve their desired returns on software investments. These challenges are compounded by
traditional software pricing models that often force companies to make long-term commitments for projected capacities. When these
projections are inaccurate, the desired returns on investment may not be achieved. Many companies are also concerned that, due to short
product life cycles for some software products, new products may become available before the end of their current software license
agreement periods. In addition, some companies, particularly those in new or evolving industries, want pricing structures that are linked
to the growth of their businesses to minimize the risks of overestimating capacity projections.
We believe we can service our customers better by offering more flexible licensing terms to help our customers realize maximum value
from their software investments. In October 2000, we formalized this philosophy and refer to it as our Business Model.
Our Business Model offers customers a wide range of purchasing and payment options. Our flexible licensing terms allow customers to
license our software products for relatively short periods of time, including on a monthly basis. Through these flexible licensing
agreements, customers can evaluate whether our software meets their needs before making larger commitments. As customers become
more comfortable with their software investments, they typically license our software for longer terms, generally up to three years.
Some customers prefer to choose cost certainty and sign longer-term agreements. Under our flexible licensing terms, customers can
license our software products under multi-year licenses, and most customers choose terms of one to three years, although longer terms
are sometimes selected. We provide our customers with the option to change their product mix after an initial period of time to mitigate
their risks. We also help customers reduce uncertainty by providing a standard pricing schedule based on simple usage tiers.
We also offer software licenses to customers based on the value created from our customers’ business processes by linking our pricing
structure to the growth of our customers’ businesses. For example, an airline company may choose to license our software based on the
number of passenger miles flown during a defined period. Although this practice is not widely utilized by our customers, we believe this
metric-based approach is unique in the software industry and can provide us with a competitive advantage.
As a result of the flexible licensing terms we offer our customers, specifically the right to receive software in the future within defined
product lines for no additional fee, we are required under accounting principles generally accepted in the United States of America to
recognize revenue from our license agreements ratably over the license term. For a description of how ratable revenue recognition has
impacted our financial results, refer to “Results of Operations” within Item 7, “Management’ s Discussion and Analysis of Financial
Condition and Results of Operations.”
Sales and Marketing
We distribute, market, and support our software products through our own sales force and through a network of independent,
value-added resellers (VARs), original equipment manufacturers (OEMs), distributors, and dealers. Facilities managers, including CSC,
EDS, and IBM, often deliver IT services using our software products to companies that prefer to outsource their IT operations.
In addition, our professional services organization offers our customers a single point of contact for all of their installation, integration,
and ongoing maintenance needs. Our Customer Advocates maintain customer relationships, identify possible areas for additional
education or services, and help ensure that our customers maximize the benefits of their licensed software. We have Sales Specialists
(sales persons who focus on a single product area, such as storage management or security management) and Account Directors
(individuals responsible for overall account management of specific customers) to enhance the sales and customer satisfaction process.
Our sales organization operates on a worldwide basis. Each geographic territory offers all or most of our software products. As of
March 31, 2005, we had approximately 5,100 sales and sales support personnel, including our solution-focused Sales Specialists,
Account Directors, and Customer Advocates.
We operate through branches and subsidiaries located in 47 countries outside the United States. Each of these organizations has a sales
team that offers all or most of our software products in its territory. Approximately 49% of our revenue in fiscal year 2005 was derived
from operations outside the United States.
We actively encourage VARs to market our software products. VARs often combine our software products with specialized consulting
services. A VAR services a particular market or sector and provides enhanced user-specific solutions.
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