Friday, March 30, 2007
How am I doing with my research?
My first section concentrates on the supply chain of physical products and what this means for organisations. What I argue is that supply chain management is based on the laws of physics, such as the law of conversion of mass, etc., and this in turn leads to all sorts of different artifacts (processes, technologies, facilities etc.), that are absolutely essential in order to compete successfully.
Next, I turn my attention to software as a product. The difference with software is that it is virtual, and therefore the rules applying to physical goods don't apply so much. The case is made that things seem so much simpler when selling and distributing software over the Internet. But that's not my thesis - my thesis is that new, very different, challenges appear, and it behoves managers to understand them well in order to avoid failure when selling and distributing online.
So what are the challenges? Is it just a case of sticking it up on a website and waiting for the money to roll in? I think not.
I have uncovered the following issues:
a) Technological Compatibility: End-user technologies and platforms are continually changing, so what might seem to work in-house is not necessarily guaranteed to work at the client site. Software companies need a way of controlling the client environment so that the software has the best chance of installing and executing correctly. Testing methodologies need to be developed that are in tune with client environments. This can potentially add overhead to the software release process.
b) IP Protection and licensing: The fact that every client machine is a software factory with infinite capacity to produce 100% perfect copies of your software presents a major challenge to software companies. Sophisticated licensing approaches are required involving both technological, legal and business measures. The key thing, I think, is developing a relationship with the customer of your products. Although it is easy to copy software, paying customers are not so easily copied, and once you have their attention it's the service you give them that will dictate the future revenue stream.
c) Bandwidth. In 2007, it is not possible to distribute software instantaneously to all customers. Different countries, regions and customers differ wildly in terms of downloading ability. Some are on dial-up, some on broadband and some don't have any Internet connection at all. Despite Moore's Law, the roll-out of broadband has been hampered by regulatory and anti-competitive factors. Many commercial software products require multiple gigabytes of disk-space, so downloads can long, painful and unsuccessful. Technologies such as BitTorrent offer potential solutions over the medium term, however physical distribution (CDs, DVDs) cannot be entirely discounted for a while yet.
d) The importance of "free". Software product companies need to understand the importance of giving away some of their product portfolio for free. There are a number of reasons why this is the case:
- Software, like most digital goods, is known as an experience good - to assess the value of the product, the customer has to experience it first of all. A free sample is the best way to do this.
- The marginal costs of software are practically zero, so "selling" certain products at zero price is feasible.
- The industry has pretty much dictated that software be provided, at least initially, for free. If you don't do it, your competitors will. Commercial software companies are alert to the fact that certain competitors (open source etc.) are providing software to customers for absolutely no charge.
- The dynamics of customer lock-in are enormous with software, so it's important to gain a high degree of market share quickly. The easiest way to do this is to give your stuff away.
e) Sustaining demand. Here's the problem: you sell your first copy to customers. It's well received and you gain a significant market share. Then you sell your first update, then the next one and so on. In the eyes of the customer, is there real value in these updates? Because if there is not, why should they continue to update? Many software companies see drop-offs in software updates over time, partially due to this value reason, but also because it's so easy to forestall on an update if economic times are hard. Innovation - continuous innovation focused on customer value - is extremely important. In addition, the software product company must look to services to maintain a robust revenue stream in good times and bad. The customer needs to comes first, not just the product.
f) Partnering. It's rare enough that a software company can satisfy all customer requirements on its own. The existence of common (open or de-facto) standards provides an unprecedented ability for software companies to get together to develop and market products to their customers. Partnerships are extremely important in the industry and there is a trade-off to be managed between taking all the revenue for yourself, and sharing it with other companies. Managing these partnerships, getting the contractual mechanisms right and aligning the work-flows are a challenge.
g) Globalisation. When you release any product on the Internet, it's immediately available to an online audience. However with software, customers (and competitors, and criminals) can download it and use it immediately. Software companies need to go global very quickly, or at least need to think carefully about global issues when releasing their software. Localisation is a challenge, global pricing is a challenge, and issues such as international marketing and international law also need to be considered.
h) Management funding and knowledge. Another thing I have discovered is the management perception that "distribution is easy" - limited resources are invested in the distribution process and release time-scales are greatly limited. Software companies often perceive themselves as development and marketing companies only, with "the bit in the middle", i.e. getting the software to the customer and providing regular updates thereafter, seen as something of an afterthought. This is pity because distribution and deployment, done well, offer software companies in particular great possibilities in terms of customer integration and feedback.
I am in contact with people in the industry to help me to validate these challenges, and possibly add a few more challenges to the list. I am also interested in what order companies perceive their greatest challenges to be and in understanding the responses to these challenges
Finally I need to look at the role of supply chain management in an industry that is quickly moving from physical distribution to Internet distribution. Is it dead? Is it irrelevant? From what I have uncovered so far it is not. Look at it from this point of view: supply chain management is about alignment of goals, processes and people. It is about management of physical, financial and informational flows. It's about giving the customer what they want when they want it. It is a philosophy that concentrates itself on the external environment, rather than simply the internal. Software companies need all of this in abundance. It may not be so important to watch every copy, or even to care where every copy is, but it is important to maintain coherence and competitiveness in a very fast-moving industry.
Thursday, February 08, 2007
Interesting potted history
At one stage, software was not a product in its own right. It was part of the hardware. Then, it became separate from it, then bundling was introduced, then volume discounting, then licensing and network licenses. The next big change was free software and the charging for services instead of the software. Advertising supported models have now started to become commonplace. We are now seeing a move into SaaS and subscription based models.
That's it in a nutshell.
Friday, December 15, 2006
The Long Tail
Essentially, as I understand it, one of the big changes in the future is that consumers will be driven much more towards niche products than in the mass-market offerings traditionally available. One of the reasons is that shelf space is virtually infinite in the digital world, whereas it is a costly commodity in the physical realm. Therefore, customers now can afford to be as choosy as they wish. We will not need to accept "good enough" - products that suit us can be chosen to maximum effect.
It puts the 80/20 rule on it's head: 80% of all customer demand in the future will be inside the "long tail" - typically that 80% of products that traditionally accounted for 20% of all sales.
I have my doubts as to whether the 80/20 rule disappears completely though, as 80/20 is about much more than just shelf-space or channel capacity. Interdependence and viral communication can generate huge demand for single products simply by them being in the right place at the right time and gaining the interest of highly influential individuals. In any case, I may have taken this up wrong, and I should read more about it.
The idea is the brainchild of Chris Anderson, Wired Magazine editor-in-chief and more details can be found at his Long Tail blog. He provides a summary of the theory and has recently published a book on the subject.
Friday, December 01, 2006
The IT Skills shortage
And yet, this conference was one of the most mentally stimulating and informative conferences I have ever been at. It was very business focused and I left with an abiding impression that to understand business nowadays, you need to understand technology.
It's a sexy area to be involved in. A career in IT has a lot of promise, a huge amount of diversity and it opens up huge business possibilities for people. IT, quite literally, has changed, is changing, and will change the world.
What is being done, I wonder, to convey this sense of opportunity and potential to secondary students who are deciding on a future career? The IT@Cork conference certainly conveyed it to me, but are we doing as good a job reaching out to the younger generation? And if not, why not?
Thursday, November 30, 2006
Oh, yes: and we should all go out and buy gold. Now.
Apart from a chance to meet up with good friends and acquaintances, one of the benefits of attending conferences such as this are the insights you gain yourself as different topics are discussed. Here are some of my thoughts:
I think open source has a huge future within the software industry, but I am still somewhat sceptical as to how far the paradigm can reach. There are thousands of people around the world who are happy to challenge the big players by producing and debugging software in their spare time. My question is, however, how big this pool of talented programmers is? Like most things in life, surely the 80:20 rule applies? Systems like Linux and Firefox etc. get lots of eyeballs for sure, and as a result the software is really top class. I wonder however about other, less well known software programs. I've downloaded a few examples in recent months and I haven't been terribly impressed. Open source, surely, is only as good as the size of the software programmer ecosystem, and wouldn't you expect that this ecosystem, while large, is still limited in size overall?
I love blogging and I love the idea of it, but a revolution it isn't (yet at least). Some people speaking were carried away with the idea that the blog was the greatest viral advertising mechanism ever invented. A guy who mentioned paper brochures was shot down in flames by Marc Canter (entertainingly so, I must admit). Well hold on here a second... I heard somewhere that the number of blogs was at around 30 million at the moment. I doubt however that all these blogs are updated frequently. So lets say that 30% of all blogs are being updated somewhat frequently - that's about 9 million bloggers around the world. That's still a really small group of people! I get the distinct impression that most people still *don't know anything* about blogs, and even more, couldn't care less. At the conference at least two attendees - people involved directly in IT - asked me what a blog was. The problem I think, is The Chasm: the majority of people out there are non-technical, and will only engage in a particular technology when they see lots of other people doing it. Blogging has been an success amongst the early adopter community, itself not an insignificant percentage of people. But early adopters and conservatives tend not to speak to each other in the same language. This, in general, is an issue for all Web 2.0 technologies at the moment: the Chasm has to be breached, and no-one quite knows how to do it.
So, in essence, although I was somewhat underwhelmed by the Microsoft presentation yesterday, my feeling is that Microsoft has less to worry about than many people might expect. Microsoft has the ear of the CEO and the CIO. It is the incumbent. It crossed the Chasm years ago. Open source and Web 2.0 technologies have yet to make their impact amongst the conservative majority in the business field. That's not to say they won't sometime in the future, but I wouldn't yet be breaking out the bottles of champagne.
Sunday, November 26, 2006
The hacker who broke into Apple's iPod
Thursday, November 09, 2006
Software copy protection
Now copy-protection, in the form of license management is on its way back. Every time the software is used, a central licensing server is consulted first. Much more flexibility can be programmed in so it's not so blunt a solution any more. Worth a read.