Software distribution processes

The ability of a car to "call home" or for its software to be updated remotely will grow and grow in the years to come as telematics becomes a standard. Imagine: NASA were doing this in the 1960's with rockets to the Moon, and we are only getting it in cars now! This article explores the issue in a bit more detail.

Three software business models seem to continually pop-up in the industry. There probably are more, but these one are certainly worth finding out more about.

1) Expand and Dominate. This model, characterised by the likes of Microsoft, SAP and Oracle, is one where the software footprint continually expands. It is heavily reliable on new products: aquiring new customer bases, adding new functionality and ensuring that when customers dig into their pockets, they are digging in deep. The dynamic is very strong in the industry, with the result that smaller companies with good products tend to be driven out of business, or are acquired by software behemoths with surprising speed. The model takes on its behaviour from the recognition that software revenues from any particular product tend to be high growth, tailing off into low growth and stagnation after a relatively short period of time. To sustain high growth rates, companies in this arena need to continually expand and to quickly gain a strong foothold in emerging technologies.

2) Update Harvesting. This model is not so much focused on high growth, as in sustaining the value of the product once it begins to reach maturity. Companies with products that continually need to be updated to stay relevant or content aggregators are best positioned to make money in this market. Examples would include financial software companies like Intuit, news services, premium email services. Pricing is often on a subscription basis.

3) Service Oriented. This model doesn't care so much about the value of the software, but bases its whole business model on the services that come packaged with it. This is the hot spot for the Open Source Community. Example companies in this field include Red Hat, Sun Microsystems and Sugar CRM. Software in this space cannot be trivial - it embraces complexity so that services are required to gain the maximum benefits from the software.

Here's another article which talks about defending embedded systems from security breaches. It briefly discusses some systems architecture approaches that can help to prevent hackers from breaking into an in-car network, potentially causing massive problems.

Here's an article about security concerns with the houses of the future. Security replaces logistics as the real headache for software distribution.

I've been reading an article on Value Innovation (Kim & Mauborgne, Harvard Business Review, 1997) - and there are a few key points identified: first of all, value innovators look at the overall map of value of their industry, and second of all they ask 4 questions about it : a) what aspects of current value deliver can be eliminated, b) what aspects can be greatly reduced below industry norms, c) what aspects should be greatly enhanced, and d) what aspects are completly new to the industry? Interesting questions.

Here's an interesting article from Business Week which claims that Web adoption in the U.S. has now reached saturation point - an underwhelming 64% of all Americans have net access. The expectation is that web usage will only increase by 1 percentage point this year. In addition, it's not just the old and elderly who are not going online. "Some 39% of the Netphobes attended or graduated college or have at least some associate degree training. And 29% are 44 years old or younger." (The source is a research study from Parks Accociates in Dallas).

The takeaway for managers involved in software distribution is that a large segment of the end-customer base will not go online for the foreseeable future. Software strategies need to think in terms of hybrid distribution: online and physical.

This entry and research report about the decline in music CD sales is possibly only marginally associated with issues of software distribution, however it does suggest that rumours of the death of CDs are somewhat exaggerated. Although physical music distribution has been dealt a serious blow from file sharers, there still appears to be a market out there with modest growth potential - all depending on the demographics you target. The hey-day of CDs are most definitely over, but music may not completely migrate into an online only model, at least in the short term.

A key issue in the area of software distribution is security and privacy, and in this vein it is worth taking a look at Google's Software Principles, because it tells you a bit about how unwanted software can get installed on your PC, as well as highlighting the threat to the industry caused by unwanted software. There's a whole revenue stream at work here that has nothing to do with improving the experience for the end-user.

Some other new titbits - France is trying to force Apple to make their tunes available for other MP3 players. Apple, in response, are threatening to close down their iTunes site in France.

Meanwhile Google is pushing forward with a model to make books available online. They have already embarked on an effort to make out-of-print books available, but they have run into the sand regarding copyrightable material.

Interesting EE Times article passed on to me. Microsoft has linked up with Fiat to provide an in-car BlueTooth service. "Blue&Me allows drivers hands-free operation of cell phones, digital music players, and other devices via a push-to-talk button and speech-recognition technology".

What particularly interested me is that the software will be upgradeable, presumably via the mobile network. "Key feature is the upgradeable software that can accommodate changing customer needs for support of future devices as well as updates to industry standards."

A part of why I am doing this is to collect and record information and articles that may be of benefit to my coursework and in so doing to be in a position to recall them later quickly, no matter where I am or what I am doing.

I am reading Michael Porter's article "What is Strategy" (Harvard Business Review, Nov 1996): it emphasises the difference between operational effectiveness and strategy, or the creation of "sustainable difference" in the way a company operates. Interesting stuff - particularly where he talks about the need to to organise activities so that they closely "fit" together. It is not a separate activity that creates competitive advantage, it is how well they fit together that creates the difference. He also explains how trade-offs are important in developing a business strategy - the companies that are willing to trade off one advantage to gain a marked advantage in another area are able to defend themselves better against competitors, and to sustain this difference over quite a long period - "strategy renders choices about what not to do as important as choices about what to do".

Apple have made a small move into the world of subscriptions by introducing a new service into iTunes called Multipass - this will enable buyers to watch popular comedy programs as soon as they are broadcasted.

Also, TiVo have announced the phasing out of a flat-fee lifetime service plan in favour of more flexible pricing options. The emphasis seems to be clearly on creating a strong revenue stream from a subscriptions based model.

Even in today's post internet boom phase, it is not true to say that the internet has completely penetrated all aspects of business. Even in the last few days, I have come across end-users who have no internet and no access to the internet. More critically, sometimes you just have too much software to deliver to the customer - anything over 100Mb and you start to have problems. Employing the internet as your core delivery mechanism will cause you to lose precious hours - even with broadband access.

Now, of course there are ways around this issue - keeping everything online for instance, however if you are attempting to download to a remote device this might not be an option. So, a CD, a DVD, a Compact Flash, a USB key, or some sort of physical distribution mechanism will be required.

The question is then raised as to how you achieve this. Do you set up a completely brand new distribution mechanism to cope with the physical delivery, or what else can you do?

One approach that seems to make sense is to stay focused on the Internet delivery, giving all customers access: but having a complementary physical distribution mechanism, perhaps for an extra fee to cover distribution charges. Sun are doing this with their Java Runtime Environment. If you download it off the internet it's free, but if you want it on CD you will need to pay for it.

I'm reading how Cusomano in 2002 was somewhat skeptical of Red Hat's chances in the software market, so I decided to go onto their website to assess how they have done since the early part of the decade when they were incurring incredible losses.

The picture is an interesting one. Red Hat are quite a profitable company now with good cash resources, and are slowly working to a position of net earnings since their foundation. It's a good example of a subscription model working, particularly in a business where the 'product' itself is freely available open source software.

The 2005 financial report is here.

From CNet:

"The European Union wants member states to back an industry-led $3.24 billion research program into the invisible embedded computer systems that control everyday household appliances, consumer gadgets and cars."

"A fifth of the value of each car produced in the EU is due to embedded electronics, a value that is expected to rise to about 40 percent by 2015, creating 600,000 new jobs in the EU automotive sector alone, according to Artemis."

Now, how about updating all those embedded systems easily?

Microsoft have plans to make their next version of Windows software easily upgradeable. There will be 6 different versions of Windows Vista, and, in addition to a customer buying a CD upgrade, they will be able to purchase the software online. How will the channel like this, I wonder?

Another potential way of looking at software is as a utility - something that is always present in the background, and you only pay for it depending on how much you use. This, according to Cusomano, was IBM's big insight when it introduced its On Demand strategy in 2002.

Of course when we think of utilities we think of commodity products: electricity, gas, oil etc. Software often has intrinsic value: you might expect to pay more for ERP software than, say, video game software. There is also the issue of how connected a user must be in order to use such a model.