Tuesday, January 31, 2006
Software: The new supply chain paradigm?
In the physical world, we are accustomed to the concept of a supply chain: for a box of breakfast cereal to arrive on your table, the activities of numerous suppliers must line up: retailers, box manufacturers, cereal producers, sugar producers, even back to farmers, foresters and oil companies. Supply chain management deals with the process of co-ordinating these activities and information flows to ensure that the customer is able to receive what they want when they want it.
But what about the software supply chain? It is my view that software turns the world of physical distribution on its head. There are much fewer suppliers - just a software company: indeed, teams of developers would not often think of themselves as suppliers in an operational sense. The product needs only to be manufactured once. From there it can be copied - ad infinitum in just one keystroke. There is no transportation channel required as a free, globally available medium is available to everyone for instant distribution: the internet. Version updates can happen more frequently, even daily. Returns of software are distrusted, and the industry itself faces unique threats from freeware / open source providers and security breaches.
It might seem that software is precipitating a seismic revolution in distribution. In some cases, particularly for digital media companies, this is true. In many other industries the impact is not as significant. We still can't download breakfast cereals to eat (although the tastelessness of some of them would leave you with doubts). However, the new distribution frameworks could pose substantantial risks and opportunities, even for traditional companies. More and more, companies will need to integrate software distribution processes with their traditional processes. In essence, a new hybrid supply chain will be required for most enterprises.
Why do I think so? First of all, software is insidious. It is getting inside everything these days. Everything from washing machines to cars to childrens' toys to human pacemakers. More and more products come equipped with microprocessors, some of which might need updating some time in the future. Secondly, even if a company does not produce software based products it may need a channel to distribute digital brochures, manuals and training material which might require online distribution channels. The future shows no signs of these trend ceasing. We are on course to a state whereupon almost all products (including clothes and perhaps even food) will contain online microprocessors and where consumers expect to receive all information via an online medium.
For the purposes of my thesis, my intention is to look more specifically at software as a product: something that has a value to an end customer, that can be bought and sold, and is downloadable via the internet to an external device. As a result it is not initially focused on content management, internet access based services or internal asset management / software deployment systems. I may change my views as I go through this investigation (to paraphrase Rumsfeld: It's an unknowable unknown). That said, I'm interested primarily understanding how a company that distributes software over the internet can compete on a profitable basis.
So this is my journal for the coming months. Any links I find or findings I come up with will be posted here.