Tuesday, February 21, 2006
Cashcasting Ricky Gervais
People might need to start shelling out some cash to hear their favourite podcasters. Ricky Gervais has announced that he will be charging a subscription fee.
"The Gervais experiment will give analysts an answer to the question - will people pay for radio shows on the net?"
"The Gervais experiment will give analysts an answer to the question - will people pay for radio shows on the net?"
Friday, February 17, 2006
Other considerations
Some more take-aways from Cusomano's book: To sell into enterprises, software companies need to pay more attention to the "Whole Product Solution" - solid reliability, ease of use for new adopters, and strong documentation and technical support. This is a big overhead, but the findings are that a software company has many more ways of being successful with enterprise customers than if they are selling to a mass market. The bottom-line I get from this is that if you are selling to businesses, you need to consider yourself something other than a pure products company.
Gaining recurring revenues through subscriptions etc is also highly recommended in the book. While product sales can fluctuate wildly, revenues through recurring business can keep a company afloat in lean times. Plus, there are strategies in place to encourage customers to continue to pay for upgrades, e.g. backwards compatibility but not forward compatibility. A word of caution though: if a company is not innovating with new product sales, the recurring revenues will eventually decline. Both are intimately related to each other.
Geoff Moore, whose book I have but not yet read, talks about the different types of customers in the tech/software industry. Just because you have done well with early adopters is no guarantee that your products will appeal to the mainstream. This is known as "The Chasm".
Some more reading recommendations I will try to follow up on: "Inside Intuit: How the Makers of Quicken Beat Microsoft and Revolutionized an Entire Industry", by Suzanne Taylor. Interesting because Intuit was in competition directly with Microsoft, and yet managed to survive to this day. Another one is "Information Rules: A Strategic Guide to the Network Economy" by Carl Shapiro and Hal Varian. I'm beginning to find there is plenty of reading material around!
As an aside, here is an interesting article from John Thompson, CEO of Symantec. It helps to underscore the issue of security as a fundamental one for the software industry.
Gaining recurring revenues through subscriptions etc is also highly recommended in the book. While product sales can fluctuate wildly, revenues through recurring business can keep a company afloat in lean times. Plus, there are strategies in place to encourage customers to continue to pay for upgrades, e.g. backwards compatibility but not forward compatibility. A word of caution though: if a company is not innovating with new product sales, the recurring revenues will eventually decline. Both are intimately related to each other.
Geoff Moore, whose book I have but not yet read, talks about the different types of customers in the tech/software industry. Just because you have done well with early adopters is no guarantee that your products will appeal to the mainstream. This is known as "The Chasm".
Some more reading recommendations I will try to follow up on: "Inside Intuit: How the Makers of Quicken Beat Microsoft and Revolutionized an Entire Industry", by Suzanne Taylor. Interesting because Intuit was in competition directly with Microsoft, and yet managed to survive to this day. Another one is "Information Rules: A Strategic Guide to the Network Economy" by Carl Shapiro and Hal Varian. I'm beginning to find there is plenty of reading material around!
As an aside, here is an interesting article from John Thompson, CEO of Symantec. It helps to underscore the issue of security as a fundamental one for the software industry.
Thursday, February 16, 2006
Product companies and service companies
While my analysis will look primarily at software strategies for product companies, the issue of services cannot be ignored. Reading through Cusomano's book "The Business of Software", he blurs the distinction between product companies and services companies, saying that many product companies inadvertantly transform into services companies, particularly when bad times occur.
Software products, while sometimes having over 95%+ gross margins, appear to have a few major problems that are relevant to this analysis. First of all, they are in most customer's minds, discretionary. When times go bad, customers stop buying: and this can take place almost overnight. Secondly, the meteoric growth curves of software hide a hidden monster - saturation. Before the software company realises it, they have saturated their market. Further sales become harder and harder to come by. And finally there is the problem of commoditisation. If margins really are that phenomenal, then there is a greater tendency in the software world to try to undercut the competition, right to the point where the software itself becomes free. The lower margin opportunities provided by ongoing service revenues are seen as a buffer that can keep companies out of trouble, particularly in lean times.
I have a lot more to read, but these are key insights.
A few more news snippets: Microsoft have announced pricing details for Office 2007, Oracle tried to buy the owners of the freely available MySQL database, and an executive with SAP, has pooh-poohed the idea of open source enterprise application providers being able to stay in this market for the long-haul.
Software products, while sometimes having over 95%+ gross margins, appear to have a few major problems that are relevant to this analysis. First of all, they are in most customer's minds, discretionary. When times go bad, customers stop buying: and this can take place almost overnight. Secondly, the meteoric growth curves of software hide a hidden monster - saturation. Before the software company realises it, they have saturated their market. Further sales become harder and harder to come by. And finally there is the problem of commoditisation. If margins really are that phenomenal, then there is a greater tendency in the software world to try to undercut the competition, right to the point where the software itself becomes free. The lower margin opportunities provided by ongoing service revenues are seen as a buffer that can keep companies out of trouble, particularly in lean times.
I have a lot more to read, but these are key insights.
A few more news snippets: Microsoft have announced pricing details for Office 2007, Oracle tried to buy the owners of the freely available MySQL database, and an executive with SAP, has pooh-poohed the idea of open source enterprise application providers being able to stay in this market for the long-haul.
Wednesday, February 15, 2006
Digital Rights Management and free software
I've just come across the following article that talks about the conflicts between Digital Rights vendors and free software. It neatly explains the conflicting interests of the three parties involved: content providers who want to protect their software, control its distribution and maximise profits from that software, consumers who want software for the cheapest possible price and don't want restrictions imposed on its use, and DRM vendors who want to become the technology providers of choice to the content providers. It considers how a free DRM provider might meet these challenges, and what issues might be thrown up as a result.
Another white paper reviews the recent SONY spyware issue, and their unorthodox (and costly) attempts to impose DRM on their music, which landed them in a lot of hot water. It brings up issues that I think apply to all digital content.
Finally, on the topic of how happy businesses are to get continuous updates, this survey paints a rather gloomy picture.
Another white paper reviews the recent SONY spyware issue, and their unorthodox (and costly) attempts to impose DRM on their music, which landed them in a lot of hot water. It brings up issues that I think apply to all digital content.
Finally, on the topic of how happy businesses are to get continuous updates, this survey paints a rather gloomy picture.
A few more links
In no particular order:
A CNET article on software pervasiveness and how all sorts of devices are going to be internet connected at the end of the decade.
Now, a few articles on how software glitches have manifested themselves in computer devices. If it happens, what options do traditional companies have to rectify them without organising an expensive and damaging recall? The examples are Toyota, Motorola, Nikon, and Sony.
Finally an article on software failure, giving a long list of major software crashes. Some quotes too about the number of lines of code in an average cellphone.
A CNET article on software pervasiveness and how all sorts of devices are going to be internet connected at the end of the decade.
Now, a few articles on how software glitches have manifested themselves in computer devices. If it happens, what options do traditional companies have to rectify them without organising an expensive and damaging recall? The examples are Toyota, Motorola, Nikon, and Sony.
Finally an article on software failure, giving a long list of major software crashes. Some quotes too about the number of lines of code in an average cellphone.
Tuesday, February 14, 2006
The Economic Dynamics of Software
Just making my way through McKelvey's Economic Dynamics of Software.
In it, she identifies 3 distinct economic models at play: a) Firm-based: company owns the software and infrastructures, b) Hybrid: companies get commercial benefits from publically available software infrastructures, and c) Network-based: no proprietary control over anything. The three real-life examples used are Microsoft, Netscape and Linux.
An interesting quote from the piece is "What differentiates knowledge intensive products from many other industrial goods is, obviously the relative economic importance of knowledge as compared to physical and distributional aspects.": Software is essentially a codified type of knowledge, but are the distributional aspects completely irrelevant?
In discussing Firm-based models she makes the point that there are clear incentives on the company to control development and use of the product, and there are huge benefits in holding control of a vital component of the software that other software services require. The successful firm needs to continuously innovate and incorporate new features in order to stay ahead of competition.
In the hybrid model, speed to market and brand recognition are stressed as key attributes. The argument is put forward that Netscape was an example of such a company, but under pressure from Microsoft's Internet Explorer, it was eventually subsumed into AOL. Netscape is an example of a product company moving into a services company, a theme which is highlighted by Cusomano.
The network model cites Linux as the example and describes how it is fundamentally uneconomic in nature, but how armies of software developers have willingly lended their support towards its development.
Some interesting linkages are made between software and other types of industries: the sharing of academic information is one, and pharmaceuticals is another. McKelvey says that "software which is openly available on the internet tends to develop in a manner which is even more like public knowledge than like a traditional or standardized product." There is a study by Mowery and Rosenberg (1998) that looks into models that seem to have very strong parallels with software.
There is a paragraph where different distribution techniques (and their costs) are discussed: production and distribution costs can be high (if for instance the software is produced in physical form, CD's etc), or very low if made available over the internet as share-ware.
There is also an interesting point made that the competition in the software market is very different, where companies can compete directly with non-profit making enterprises, and where piracy can directly affect the dynamics of the market.
I'm not sure if choosing Microsoft or Linux were particularly good examples, given the extremely dominant natures of these organisations. Microsoft has revenues greater than the next 42 competitors combined, and as such its degree of control is unprecedented. How about looking at a firm-based model that is successful but not as dominant as Microsoft but is still highly profitable? How about an open source collaboration that has evolved since Linux and has a loyal yet more specialised devotee list? The selection of Netscape seems to indicate that hybrid companies are doomed, but is this really the case?
In it, she identifies 3 distinct economic models at play: a) Firm-based: company owns the software and infrastructures, b) Hybrid: companies get commercial benefits from publically available software infrastructures, and c) Network-based: no proprietary control over anything. The three real-life examples used are Microsoft, Netscape and Linux.
An interesting quote from the piece is "What differentiates knowledge intensive products from many other industrial goods is, obviously the relative economic importance of knowledge as compared to physical and distributional aspects.": Software is essentially a codified type of knowledge, but are the distributional aspects completely irrelevant?
In discussing Firm-based models she makes the point that there are clear incentives on the company to control development and use of the product, and there are huge benefits in holding control of a vital component of the software that other software services require. The successful firm needs to continuously innovate and incorporate new features in order to stay ahead of competition.
In the hybrid model, speed to market and brand recognition are stressed as key attributes. The argument is put forward that Netscape was an example of such a company, but under pressure from Microsoft's Internet Explorer, it was eventually subsumed into AOL. Netscape is an example of a product company moving into a services company, a theme which is highlighted by Cusomano.
The network model cites Linux as the example and describes how it is fundamentally uneconomic in nature, but how armies of software developers have willingly lended their support towards its development.
Some interesting linkages are made between software and other types of industries: the sharing of academic information is one, and pharmaceuticals is another. McKelvey says that "software which is openly available on the internet tends to develop in a manner which is even more like public knowledge than like a traditional or standardized product." There is a study by Mowery and Rosenberg (1998) that looks into models that seem to have very strong parallels with software.
There is a paragraph where different distribution techniques (and their costs) are discussed: production and distribution costs can be high (if for instance the software is produced in physical form, CD's etc), or very low if made available over the internet as share-ware.
There is also an interesting point made that the competition in the software market is very different, where companies can compete directly with non-profit making enterprises, and where piracy can directly affect the dynamics of the market.
I'm not sure if choosing Microsoft or Linux were particularly good examples, given the extremely dominant natures of these organisations. Microsoft has revenues greater than the next 42 competitors combined, and as such its degree of control is unprecedented. How about looking at a firm-based model that is successful but not as dominant as Microsoft but is still highly profitable? How about an open source collaboration that has evolved since Linux and has a loyal yet more specialised devotee list? The selection of Netscape seems to indicate that hybrid companies are doomed, but is this really the case?
Friday, February 10, 2006
Supply Chain Management and Software 1
My examination of the software business is based on my background in Supply Chain Management. Supply chain management relates principally to the the adoption of new insights and new technology to the age-old problem of getting products from producers to customers in an efficient and effective way.
Managing today's supply chain compared to the supply chains of the 1960's and 1970's differs in at least three key ways: a) the rise of computers in business and the ability to share real time information, b) the transformation of the manufacturing landscape owing to new quality processes such as Lean Manufacture and JIT and c) the breakdown in traditional organisational models to more organic forms.
Computers enable companies to gather information, process it and to pass it to others involved in the process at speeds unheard of by traditional paper-based methods. Real-time information does away with all the processes required to manage paper based information, and thus offers opportunities for streamlining internal business processes. It also reduces information differentials between departments in an organisation (i.e. differences in the amount of knowledge one group has compared to another). It creates opportunities for customers and suppliers to gain immediate access to important information. It enables supply chain designers to radically remodel supply networks based on near-perfect, real-time knowledge. It facilitates the efficient management of thousands of products simultaneously. The opportunites for increasing business velocity and inventory control are endless. The critical importance of IT to the whole Supply Chain movement cannot be underestimated.
Supply Chain Management has also benefitted from the revolutionary, and somewhat counter-intuitive insights that emerged from Japan in the 1970's. These insights, framed in overlapping concepts such as JIT, Lean Manufacture and TQM, trumpeted one-piece flow over economic batch manufacture, velocity enhancement as a driver for cost reduction, total product quality over component quality, and the almost fanatical elimination of waste from processes and products. From its origins on the fsctory floor, such concepts have proved useful in non-production fields, and even across the interfaces between customers and suppliers.
And how organisations have changed! The old bureaucratic Weber models of organisation where everyone had their jobs and their place have broken down, partly due to new technologies, but also as a result of social and educational changes that have reduced the gaps between management and workers, men and women, specialists and non-specialists. Approaches that favoured conflict and a small number of well defined modes of communication have given way to collaborative, multi-disciplinary, temporary, team interactions. These organisational changes have encouraged newer, more collaborative ways of working, and with this greater efficiencies have been realised. Partnership and collaboration are important words within the area of Supply Chain Management, and not without good reason.
The use of technology and new techniques have possibly found a more limited use within the arena of software development than with mainstream product manufacture: managing software development by the numbers throws up different, more intractable problems in the software industry. Techniques such as Agile development and Lean development do exist, but they have yet to gain widespread acceptance and some thinkers believe they have only limited applicability in software. Finally, in the case of software there was no organisational revolution to be had. The IT industry was at the very forefront of the new organisational changes from the very start.
So with different fundamentals, can we find any common ground between Supply Chain Management and Software development and distribution? An interesting question.
Managing today's supply chain compared to the supply chains of the 1960's and 1970's differs in at least three key ways: a) the rise of computers in business and the ability to share real time information, b) the transformation of the manufacturing landscape owing to new quality processes such as Lean Manufacture and JIT and c) the breakdown in traditional organisational models to more organic forms.
Computers enable companies to gather information, process it and to pass it to others involved in the process at speeds unheard of by traditional paper-based methods. Real-time information does away with all the processes required to manage paper based information, and thus offers opportunities for streamlining internal business processes. It also reduces information differentials between departments in an organisation (i.e. differences in the amount of knowledge one group has compared to another). It creates opportunities for customers and suppliers to gain immediate access to important information. It enables supply chain designers to radically remodel supply networks based on near-perfect, real-time knowledge. It facilitates the efficient management of thousands of products simultaneously. The opportunites for increasing business velocity and inventory control are endless. The critical importance of IT to the whole Supply Chain movement cannot be underestimated.
Supply Chain Management has also benefitted from the revolutionary, and somewhat counter-intuitive insights that emerged from Japan in the 1970's. These insights, framed in overlapping concepts such as JIT, Lean Manufacture and TQM, trumpeted one-piece flow over economic batch manufacture, velocity enhancement as a driver for cost reduction, total product quality over component quality, and the almost fanatical elimination of waste from processes and products. From its origins on the fsctory floor, such concepts have proved useful in non-production fields, and even across the interfaces between customers and suppliers.
And how organisations have changed! The old bureaucratic Weber models of organisation where everyone had their jobs and their place have broken down, partly due to new technologies, but also as a result of social and educational changes that have reduced the gaps between management and workers, men and women, specialists and non-specialists. Approaches that favoured conflict and a small number of well defined modes of communication have given way to collaborative, multi-disciplinary, temporary, team interactions. These organisational changes have encouraged newer, more collaborative ways of working, and with this greater efficiencies have been realised. Partnership and collaboration are important words within the area of Supply Chain Management, and not without good reason.
The use of technology and new techniques have possibly found a more limited use within the arena of software development than with mainstream product manufacture: managing software development by the numbers throws up different, more intractable problems in the software industry. Techniques such as Agile development and Lean development do exist, but they have yet to gain widespread acceptance and some thinkers believe they have only limited applicability in software. Finally, in the case of software there was no organisational revolution to be had. The IT industry was at the very forefront of the new organisational changes from the very start.
So with different fundamentals, can we find any common ground between Supply Chain Management and Software development and distribution? An interesting question.
As if to re-emphasise the threat from open source
A start-up company called Songbird is planning to release an open-source version of iTunes, similar to the way the Mozilla Firefox browser challenged the dominance of Internet Explorer.
Also, Oracle is looking to buy a number of open source software companies, potentially moving at least part of its business model to a situation where it gets paid for support and maintenance, and not for the upfront delivery of the software. This potentially means that, at least in the short term, Oracle see revenues dropping. Of course there is another issue, and that is how the Open Source community would view its corportatisation.
Meanwhile, there is a new service being offered in the US - TextPayMe, which enables people to pay for stuff using mobile phone text messaging services.
I have a few books winging their way to me. This will be a starting point for the thesis literature review and includes "Business @ the Speed of Thought", by Bill Gates, The Business of Software, and Crossing the Chasm.
Also, Oracle is looking to buy a number of open source software companies, potentially moving at least part of its business model to a situation where it gets paid for support and maintenance, and not for the upfront delivery of the software. This potentially means that, at least in the short term, Oracle see revenues dropping. Of course there is another issue, and that is how the Open Source community would view its corportatisation.
Meanwhile, there is a new service being offered in the US - TextPayMe, which enables people to pay for stuff using mobile phone text messaging services.
I have a few books winging their way to me. This will be a starting point for the thesis literature review and includes "Business @ the Speed of Thought", by Bill Gates, The Business of Software, and Crossing the Chasm.
Sunday, February 05, 2006
A few interesting references
I need to start taking a trawl around the academic literature, so here are a few pieces that may be of interest:
Red Hat Software's New Economic Model
Syndication and it's role in the Internet Marketplace
Setting up shop: the business of Open Source Software
The many meanings of Open Source
Business Model Analysis applied to Mobile Business
Business @ the speed of thought
Interestingly, "The Road Ahead" by Bill Gates might be a good starting point here also.
The Economic Dynamics of Software
There is also a paper on Digital Rights Management for Content Distribution (Q. Liu)
M. Van Wegberg also discusses the competition between open source software and commercial software. May be worth a look.
Red Hat Software's New Economic Model
Syndication and it's role in the Internet Marketplace
Setting up shop: the business of Open Source Software
The many meanings of Open Source
Business Model Analysis applied to Mobile Business
Business @ the speed of thought
Interestingly, "The Road Ahead" by Bill Gates might be a good starting point here also.
The Economic Dynamics of Software
There is also a paper on Digital Rights Management for Content Distribution (Q. Liu)
M. Van Wegberg also discusses the competition between open source software and commercial software. May be worth a look.
Friday, February 03, 2006
Amazon : an example of the hybrid distribution model
The online book retailer Amazon seems to be moving in a the direction of a hybrid supply chain model. Amazon's core business is the distribution of physical products (books, DVD's, electronics, etc.), but now (in reaction to competitive demand) it is looking to begin selling digital assets over the internet. Its Amazon Pages and Amazon Upgrade programs will allow customers buy soft-copy versions of books, while there are rumours that it will start selling digital music and videos over the internet in the months to come.
How it does this will be very different to its current, quite traditional, distribution process: no inventories or physical transportation issues, new pricing policies, upgrade issues. It will be interesting to see how it all works out.
How it does this will be very different to its current, quite traditional, distribution process: no inventories or physical transportation issues, new pricing policies, upgrade issues. It will be interesting to see how it all works out.
Free Software strategies
The issue of companies distributing products for free looms large in the software industry. I looked yesterday at all the companies distributing BitTorrent technology freely, and today I see an announcement from VMWare , who are going to freely distribute one of their operating systems for free with an eye to charging for some of their premium brands. The aim, seemingly, is first to capture the target market, and then to make revenue from customers who like what they see and want more from the product.
People are very used now to free software. Because of this situation in the market (and because of the ready availability/ability of vendors to produce software for free) there is a competitive push to make at least some of the technology available for free on the net, and then to start looking for revenue later. The apparent dynamic in the industry is first to capture the market, then to start making money from this market. Without the capture phase in place as a precondition, little or no revenue is possible.
This even seems to work at an individual programmer level: the unemployed or student programmer, or the hobbyist, who wants to make his name in the industry is encouraged to take this exact same approach as a means of generating future wealth. The big companies can often find themselves competing directly with talented single individuals who are out purely to make a name for themselves. Again, this is a dynamic much less prevalent in the classic business model of traditional product delivery. Software companies need to defend themselves from the unlikeliest of competitors.
People are very used now to free software. Because of this situation in the market (and because of the ready availability/ability of vendors to produce software for free) there is a competitive push to make at least some of the technology available for free on the net, and then to start looking for revenue later. The apparent dynamic in the industry is first to capture the market, then to start making money from this market. Without the capture phase in place as a precondition, little or no revenue is possible.
This even seems to work at an individual programmer level: the unemployed or student programmer, or the hobbyist, who wants to make his name in the industry is encouraged to take this exact same approach as a means of generating future wealth. The big companies can often find themselves competing directly with talented single individuals who are out purely to make a name for themselves. Again, this is a dynamic much less prevalent in the classic business model of traditional product delivery. Software companies need to defend themselves from the unlikeliest of competitors.
Thursday, February 02, 2006
Bit Torrent reviewed
Interesting article from Wired defining how BitTorrent
works.
It's a way of getting downloads much more quickly by simultaneously polling multiple client computers that already have the software, or are currently downloading the software. Most of its use is for P2P file sharing.
The article describes some of the major BitTorrent applications on the market at the moment. Most of these applications are Freeware / Shareware. Looks like Mozilla might be getting into this game soon.
works.
It's a way of getting downloads much more quickly by simultaneously polling multiple client computers that already have the software, or are currently downloading the software. Most of its use is for P2P file sharing.
The article describes some of the major BitTorrent applications on the market at the moment. Most of these applications are Freeware / Shareware. Looks like Mozilla might be getting into this game soon.
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