Jim Morris's Thought of the Week (or month, or year, ...)
Friday, March 31, 2006
Serve Software Engineers
Clayton Christiansen suggests exploiting intense competition at points on the value chain by working upstream or downstream from those points of high competition. The downstream play is more obvious – competitive forces should result in lower prices, so one should be a buyer.
The upstream play is what arms merchants do – they sell tools to the guys who are desperate to gain an edge. The global oversupply of software creators suggests there is a market for things that software producers need to gain a competitive edge. Four examples include:
Slashdot is a very successful web service whose motto is “News for nerds, stuff that matters.”
SourceForge is a clearing house for open source software components.
In some quarters, a high rating in the Capability Maturity Model is essential to compete, so teaching it is a good business.
Software production tools that convey a unique advantage might also be a viable business if the tools cannot be displaced by open source versions.
posted by Jim Morris @ 9:08 PM
Friday, March 24, 2006
Use Open Source Software.
In the earlier days of the computer business, computer companies gave their software away to encourage hardware sales. As time went by, companies realized that selling software was lucrative as well. However, a group of programmers led by Richard Stallman created a movement that encouraged the free exchange of software. These progressive programmers believed that software and all other information should be free and, ultimately, they created the system now known as GNU-Linux. Many other similar groups have followed resulting in the creation of a common base of software that now serves the world well.
Open source software is nominally free, but it has costs. Most organizations buy support services from companies such as Red Hat and Spikesource. These open source support firms not only provide services that enable the various applications to work together, but they also inform companies of updates and other new related software.
Perhaps the biggest advantage of open source software is that software engineers can fix or extend the software themselves, if necessary. Another advantage is that because the code can be inspected, it’s an educational tool for programmers.
posted by Jim Morris @ 9:09 PM
Friday, March 17, 2006
Hire Great Software Engineers.
In the software business you need the best minds you can get. Software engineers not only know programming but can design products, create highly reliable systems, and control costs. Hire them from a competitor, hire computer scientists and hope they become engineers, or hire Carnegie Mellon graduates who are great software engineers out of the box.
posted by Jim Morris @ 9:10 PM
Friday, March 10, 2006
Sell Service, Not Software
Google, eBay, Amazon.com, Yahoo!, and other successful new companies are built on software. Salesforce.com, a sales support enterprise, could have sold software licenses to businesses, but it decided to simply sell access to a web site.
The most compelling case for not licensing software stems from the nature of software itself – it’s easy to change and easy to copy.
Changing Software. Traditional software vendors release products that can’t be changed once out the door. It may take years for the customer to be able to buy an update of even the smallest bug fix. In the meantime, vendors must support an expensive system of help desks, work-arounds, and patches.
In contrast, when a pure service provider discovers a bug, the company can fix it whenever it wants to. The diagnosis and repair of problems are much easier because the service provider controls all the hardware and surrounding software. The company doesn’t have to ask questions such as “Do you have an account?”, “What version?”, and “What environment?”
posted - 3/10/2006
Copying Software. The other bugaboo of software is piracy. If you sell someone the code for a product, they can give their friends copies of it. There are huge factories in China that duplicate software. Sellers of software must pursue countermeasures, lawsuits, and negotiations to stem software piracy. The Internet has made the problem much worse by enabling cost-free distribution of any digital material.
Selling a service rather than software, however, eliminates both these problems in a single stroke - the company can update software easily because it’s the only one running the software, and there is no piracy because there is no code to copy.
Furthermore, keeping software in-house ensures that innovations remain trade secrets. Eric von Hippel and Steven Klepper have shown that manufacturers innovate more in their processes than in the products themselves. If the company’s clever ideas remain inside the business, customers and competitors cannot discover trade secrets through reverse engineering.
[1] von Hippel, Eric, The Sources of Innovation, Oxford University Press, 1988.
[2] Klepper, Steven, “Entry, exit, growth, and innovation over the product life cycle,” American Economic Review, 1996.
posted by Jim Morris @ 9:11 PM
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