Category: Software/Product Development

BYOD, Enterprise Mobile ISVs and Cross-Platform Support

One of the hottest trends in the technology industry these days is the phenomenon know as “Bring your own Device” or BYOD. For IT departments, this is the latest control-related nightmare they loath so much. The original technological shift from Mainframes to Minis and PCs was probably the start of many control-related sleep disturbances and BYOD continues the trend. Mobile computing in itself was bad enough from the perspective of the internal IT folk;. Mobile BYOD may be enough to push them all to drink.

But enough about anguish for the IT guys: what are the implications of BYOD for independent software vendors?

Cross-platform support

One of the major challenges–or opportunities–that I believe software vendors face in a BYOD world is the potentially wide variety of mobile platforms to support. Many readers are likely thinking “its only the iPhone/iOS and Android, so not a problem. Nothing else is relevant.”

Maybe-But bear with me for a bit.

Things aren’t always what they seem on the surface. For one thing, Android is hardly a single, tightly unified platform like iOS. It’s basically an open source operating system in which every OEM can (and often does) modify the OS to provide differentiation on their hardware platform. In a way this can be a good thing by spurring innovation; but if you’re a third party software vendor dependent on the parts of the OS that is often modified–it can also be viewed as problematic. But should it be?

Google has recently sought to rein in the fragmentation issue as the numerous hardware-focused variants were causing a lot of consternation in the third party software community. At a minimum this fragmentation causes a great deal of testing complexity, and at worst the necessity to maintain different code for each hardware OEM’s platform.

Back in the old days

This reminds me of back in the 80s in the early days of MS DOS. IBM had its PC DOS version and all of the other PC hardware OEMs had their own version of MS DOS as well–almost compatible with each other, but with just enough variation to cause problems. Needless to say, this caused problems in the ISV community which had to choose between supporting myriad platforms–or picking winners. Neither appeared to be a great choice.

Even if you don’t consider the Android fragmentation issue serious, I contend there are other similar platform support issues. In a world tightly controlled by the IT department, the platform choices might indeed be limited to Android and iOS. But what about Blackberry, Microsoft and any new platforms that might come along in this large and competitive market? Again I can almost see the smirking by some reading this: “those platforms are market also-rans with very small market shares. I don’t need to support them!”

Or do you?

Back in the old days–one more time

One more time I’ll take you way back for another analogous situation. In the 90s I was running a systems/network management software business targeted at the enterprise IT market. This was an “add-on” product business; our product ran on top of the Network Operating Systems (NOS) of the day. Back then, Novell Netware dominated the market with an estimated 60-80% share of the business. The other major NOS platforms (widely considered also-rans) were Banyan Vines (about 5-8% market share) and numerous OEM variants of Microsoft LAN Manager (10-15% share total). LAN Manager was slightly different depending upon the OEM hardware platform, much like Windows itself in the earlier example and Android today. The fragmentation of LAN Manager made it even less desirable for an add-on ISV market segment like our category.

All of our competitors looked at the market and designed their products to run strictly on Netware. On the surface this made total sense. There was just one problem—in the enterprise IT market (the primary target for our segment) the customers are huge companies with a lot of buying power; they like to get vendors to do what they want. Of course, many enterprises did standardize on Novell Netware at that time.

We took a contrarian approach at the time and chose to extend our product, supporting both VINES and LAN Manager in addition to Netware. We found that the larger the company, the more heterogeneous their networking environments tended to be. Even if 90% of the systems within an enterprise were based upon Netware, there was a strong desire in enterprises for support of ALL of their networks companywide. So although Banyan and Microsoft LAN Manager each had a modest number of accounts using only their NOS (we won those by default), we were in a much stronger position than our competitors in the largest enterprises with heterogeneous network environments. We won far more than are share, and the additional revenue more than made up of the modest additional development cost and support complexity.

So how do software vendors capitalize?

I bore you with the old case study above because I believe BYOD in the Enterprise will only accentuate the benefits of supporting as many platforms as possible. Although many companies with highly influential IT departments will limit choice, this is really against the spirit of BYOD. While it may look unlikely to some right now, I see BYOD generally moving the enterprise mobile software market toward heterogeneous, multi-platform environments. Forward thinking ISVs would be wise to consider this in their product plans.

There are many new challenges that are already rising as the BYOD movement takes hold. BYOD in the enterprise is a rich area for discussion. In addition to the cross-platform support issue discussed here, there are major security, legal, support and economic/cost considerations to consider. Some of these issues don’t yet have great answers–maybe we’ll explore them in a later column. BYOD is a major paradigm shift for all segments of the IT business. I believe that there will be many more yet unforeseen factors that will greatly impact the landscape for enterprises, end users and software/hardware vendors as the situation matures.

What are your thoughts on the cross platform support issue we’ve raised in this article? Give us your take. And what are some other issues brought on by BYOD that aren’t widely being discussed yet? Post a comment so we can all benefit from your experiences.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on March 16, 2013

filed in Business Models, Corporate Strategy, General Management, Product Marketing/Management, Software/Product Development, enterprise software

Software Product Marketing: Horizontal vs. Vertical

An important discussion for most software companies–both in the product planning stage and in the downstream active marketing phase–is the manner in which it will be marketed. The decisions to be made in each phase are separate but closely related. This set of discussions need to happen regardless of whether you are marketing a traditionally licensed application, an open source application or a SaaS application.

One of the more important aspects to this is whether the product will be aimed tightly at one or several vertical segments, or marketed more broadly to the widest possible audience. This is the crux of the vertical vs. horizontal decision. Let’s examine a few topics which can be useful in framing this discussion.

How specific is the “language” of your application to a vertical audience?

This is very important because in some product categories the unique business processes of a vertical can be very important, while in other categories there is great commonality in process and language across industries. If you’ve written your application specifically to solve one market segment’s unique problem, it’s probably VERY specific. When this is the case it’s pretty obvious that you’ll start (and possibly end) with a highly vertical marketing effort. Sometimes as thing go along you may find that you’ve solved a problem for market A, but it’s also useful in market segment B and C–although there often needs to be at least some modification. If you’ve solved a more generic problem that applies to many markets, the decision to market the solution horizontally or vertically can be much less clear.

How big is your overall market?

A key consideration when you’re entering a new market with a new product. The larger the market the more likely it is you will need to take a vertical approach get initial traction. In many cases this means verticalizing the product in the product development phase. But even if there isn’t a strong set of vertical needs with respect to product features and “language”, in large markets a vertical promotional approach may be required to build market traction. It is often far easier to build a brand name and market traction in a tight vertical before you move on to the next segment, than by taking a more scatter-shot approach with no vertical focus.

What is the level of competition in the overall market?

This question is related to first question above as strong competition often goes hand in hand with large markets. They are separate issues, however, and should be evaluated individually. If the level of competition is high, regardless of market size, a new entrant is likely to have a better chance of success with a more vertical approach. It there isn’t significant competition in the segment, you may be able to have success with a horizontal approach, which can be a more efficient way to use both product development resources and marketing dollars.

Market maturity: has the overall market verticalized already?

Regardless of the level of competition and the market size if the larger market has already evolved into a number of vertical sub-markets, it may be too late to take a horizontal approach. It is usually very difficult to defeat entrenched verticalized competitors when entering a market with a horizontal application. The exception to this would be a new competitor with a product that provides a quantum leap forward in functionality (usually as a result of a technological paradigm shift).

What level of marketing resources are available to you?

The level of marketing dollars available to you are quite important in formulating your approach to the vertical vs. horizontal question. As one example, let’s say you are entering a market that is large, quite competitive and you won’t have a lot of marketing budget available. In this case, it would be very important to develop the product upfront with the strongest vertical focus possible and market it accordingly. On the other extreme, you might be entering a market of modest overall size that hasn’t verticalized to a great degree to date and you are well funded, enabling a substantial marketing budget relative to the competition. It this case it might be an easy decision to take the ROI-efficient horizontal approach both from a product development and promotional perspective. There are many potential scenarios between these two extremes which unfortunately will lead to less obvious decision-making.

Is your software a “point” or “platform” application?

Most software applications are “point applications”, meaning they have little or no integration with the rest of the software infrastructure. In addition, any possible customization is generally intended to be done by the application vendor themselves or maybe their channel partners.

I define a software application as a “platform” when it utilizes an open API which enables BOTH channel partners and third party software vendors to write add-on applications which extends the platform software’s functionality in two key area:

1) by adding “vertical” functionality not present in the platform software thereby enabling a complete solution for a specific vertical market.

2) using the API to integrate the application with other parts of the software infrastructure

In this way a platform software application allows a software vendor to “have it’s cake and eat it too” with respect to the Horizontal vs. Vertical discussion. The platform software itself provides basic functionality which can be sold broadly across many markets, while the open APIs enable the product to be tightly customized for specific verticals as required, by both your channel partners and independent ISVs. The platform application can be a product manager’s dream and is the Holy Grail of software when it comes to efficiently serving as many market segments as possible by leveraging partner investments. But it’s not something that can be forced; there needs to be a natural reason for the platform to exist, or there will be no third parties willing to write the add-on applications so critical to the platform’s success. Without these add-on application a platform will more often than not die a quiet death in the marketplace.

In some cases, such as when you write an application which aimed at a problem specific to a single vertical market, the answer to this “vertical vs. horizontal” question is easy. In many other cases you’ve created a product which is useful across several market segments–but do you have the resources to attack multiple market segments simultaneously? How do you approach this common problem? Leave a comment below with your take or shoot us an email with your questions.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

3 Comments by admin on February 16, 2013

filed in Business Models, Corporate Strategy, Distribution Channels, Product Marketing/Management, Promotion, SaaS, Software/Product Development, Startup/Early Stage, VARs, enterprise software

tagged business model, channel sales, consultant, consulting, early stage, marketing, open source, Phil Morettini, PJM Consulting, Product Development, product management, product planning, Promotion, SaaS, Software as a Service, strategy, traditionally licensed, VAR, vertical market

Software Company Diversification

One of the difficult strategic decisions that software industry management teams have to make is finding the delicate balance between “focusing on the core business” and “not putting all of your eggs in one basket”.

One obvious way of differentiating how much diversification is appropriate for a specific company is by company size and maturity. A brand new startup better be very focused on doing one thing well or they may not last very long. A large, established company generally needs to have at least several new irons waiting in the fire as initial products and market segments mature, or they risk shrinking in size rather than continuing to grow. The two ends of the spectrum are pretty obvious, but there is a wide continuum of situations in between where the proper strategy isn’t as obvious. Let’s look at some factors to consider when formulating your own diversification strategy:

How much growth is left in your primary business/market/technology

This may be the first thing you should consider when contemplating the diversification question. If you’ve hit on a huge market opportunity with a lot of room to run and have gained good traction, it’s often unwise to develop “eyes bigger than your stomach”. In this environment your best growth opportunity is usually keeping your eyes on that single ball. Everything else being equal, a focused strategy is always easier to execute than a diversified one. So if you have explosive growth prospects ahead as far as the eye can see, it’s better to defer the diversification decision for sometime down the road.

Competition level in your primary business

Strong competition in your primary market is often a factor that can cause a management team to either look toward diversification or decide it needs to focus on it’s core market-depending on the details. The key is how competitive you are: if you are very competitive and yet caught in a heated battle with that strong competition the choice is often to stay focused. However, if that competition is so strong that your company is an also-ran, a decision to diversify is often taken. On the other end of the spectrum if the competition is weak, that may also allow you to more easily take on some diversification without the risk of losing hold of your profitable core business.

Level of available resources

This is a big key; if you only have the resources to do one thing well it’s critical to keep you focus on a single ball. It doesn’t matter if you have five great ideas–pick the one you think is best and sell out to be successful there. I often see early stage managers make this mistake. They aren’t sure which of their ideas is the best and this uncertainty causes them to split their very scarce resources among multiple paths. Unfortunately, this usually dooms them to not gaining critical momentum in a single area. It’s also important to measure all types of key resources when considering this factor, not just financial. Do you have enough skilled engineers, marketers or management bandwidth? If any of these or any number of other resources are in too short supply, diversification at this time is probably a bad idea.

Ease of extending proprietary technology into adjacent markets

This requires an evaluation of your existing IP. Often software companies have cutting edge technologies that can be adapted to other market segments and provide a similar differential advantage as in the initial core market. But what if the technology is very specialized, or you just can’t see another good market opportunity to invade using your existing technology as your entry advantage? In these cases it’s best to be realistic and look at other ways of diversifying, such as acquiring new technology/product categories via M&A that are usable in your current segment.

Can you create or acquire new technologies which your existing market wants?

There’s a lot that goes into answering this question. A lot of it relates to your technical staff–are they specialists in your existing technologies, or do you have the type of talent that is constantly coming up with outside-the-box ideas and potential new products?

If there isn’t fertile ground internally for innovative new ideas you many need to look at acquisitions which can bring fresh technologies and products to your pipeline. These don’t need to be huge, costly acquisitions; often you can acquire highly innovative startups which are little more than a small engineering team, a core product and a few initial customers.

Also, are your product managers identifying unmet needs from your existing user base? This is usually crucial to bringing SUCCESSFUL new products to existing markets, whether driven by internal development or acquisition of external technologies/products/companies.

Diversifying to Completely New Markets with Completely New Products/Technologies is very dangerous

Above all you want to avoid moving into a completely new market with a completely new product/technology. The odds of pulling this off successfully are very low, roughly equivalent to that of any brand new startup company. If fact, this is often referred to as a “restart”. It generally occurs when a company looks forward and sees certain failure ahead due to a hopelessly out-of-date technology or an evaporating market segment (often due to a technological sea change). I often see this from managements that are very discouraged and desperately seeking “greener grass on the other side of the fence”. But of course the grass isn’t always greener. This approach should be viewed as a last resort only; every attempt should be made to diversify into an area where there is some technological or market experience.

Like most strategic decisions, diversification in the software business isn’t inherently good or bad. The circumstances really dictate how much you should pursue. What do you think about the strategic tradeoff between focus and prudent diversification?–leave a comment below with your experiences and views.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on January 13, 2013

filed in Business Models, Corporate Strategy, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, Uncategorized

A Software Startup Video Case Study

No Comments by admin on November 18, 2012

filed in Business Models, Corporate Strategy, Distribution Channels, General Management, Mergers & Acquisitions, Software/Product Development, Startup/Early Stage, VARs, Videos, enterprise software, sales

Musings on Software Market Segmentation and TV Morning Shows

I like to check out one of the morning TV shows on one of the major US-based networks for a few minutes, as I’m eating my breakfast cereal. There are 3 major programs on at the start of the day: NBC’s Today Show (the traditional market leader), ABC’s Good Morning America (the perennial runner-up) and the recently re-branded CBS This Morning in (last place for many years).

So what the heck does this have to do with software market segmentation, you ask?

I’ve been struck by how much the morning show race reminded me of the software industry has become more vertical over time. In particular, there are some strong parallels between the software business and the morning shows with respect to the product being “soft enough” to make relatively easy product changes as part of a new segmentation strategy.

Recent changes in strategy on the TV morning shows

The Today Show has been the “10,000 lb Gorilla” of the morning shows since the beginning of the category. They’ve had a large lead over their competitors across multiple changes in on-air personnel and even societal cultural changes over the years. The Today Show’s format has been aimed at a “horizontal” audience–a little bit of something for everyone. They start with hard news at the beginning of the show and it gradually becomes “lighter”, transitioning to Pop culture, celebrities and gossip as the show progresses through its marathon 4 hour time slot.

The other two major shows have taken a real beating at the hands of NBC in the ratings, with many tweaks to their formats and even more turnover in personnel over those many years. Fundamentally they have tried to compete by “building a better Today Show”, essentially competing head on with the market leader in a horizontal fashion. But over the last couple of years, ABC and more recently CBS have changed their strategy, utilizing a much sharper segmentation than at any point previously. ABC has essentially gone “younger and lighter” over the last couple of years. The show has the least serious tone and is the most “fun” of the three, focusing a lot of time on pop culture and other topics skewed toward younger viewers. It’s paid off. Good Morning America has taken a clear lead over the Today Show due primarily to this new segmentation and to a lesser extent some personnel missteps at NBC.

After many years in last place, CBS has segmented sharply in the other direction with a shorter 2 hour program focused almost entirely on hard news and staffed by serious, credible news people. It’s too early to say how successful this will ultimately be for CBS, but they have won over this writer and have picked up some market share overall-I’m watching consistently CBS in the morning for the first time. The Today Show has been struggling to remix it formula and regain its clear lead, looking much like a complacent large company that has grown fat, dumb and happy as a result of years of unchallenged success.

Software Market Equivalents

Ok, enough about TV morning shows! How does this relate to segmentation in the software market? A very similar situation albeit in a B2B rather than B2C market, is the ERP software market. The ERP market is also a very large, horizontal market–a mass B2B software market, if you will. Just about every company in the world needs some type of ERP software to run its business, from an entry-level, basic accounting application like Intuit’s Quickbooks all the way up to very expensive, complex enterprise suites such as offered by Oracle, Microsoft, SAP and Sage.

This of course is one form of verticalization–segmentation by target customer size and sophistication. Intuit and Oracle aren’t targeting the same segments. But the ERP market is so large that over time it has also segmented by industry; nearly every industry group of any significance now has ERP software vendors with specialized applications aimed at a narrow industrial segment.

Another similar example is Medical Practice Management Software. The last time I looked, there were over ONE THOUSAND software vendors with products targeting this very large market. You would think the software requirements of most medical practices would be pretty standard across the board. But because the market is so large and lucrative, nearly every market segment (Surgeons, Gynecologists, Dentists, Chiropractors, etc.) has it’s own sub-market of competitors, with applications that speak that particular medical practice’s lingo and strictly models its business processes.

I have a personal example from earlier in my career that illustrates how important segmentation can be as part of a software company’s overall strategy. I took over as CEO of an early stage mapping software company with excellent technology but an unsophisticated business strategy. While the company had a neat technical advantage over its larger competitors, the product otherwise was positioned directly against the market leaders in that space. The primary distribution channel for the mainstream mapping products of the time was computer and electronics retailers, a notoriously tough and expensive channel. I was able to make some headway in penetrating this channel. But even with our technical feature advantage it was already too late in the game and we lacked the resources to compete and win head-to-head with the larger market leaders of that time.

So we quickly came up with a segmentation strategy that proved quite helpful. Initially we took out some features away from our primary product and created an entry level product priced far below the mainstream mapping products. This allowed us to occupy the price leader position targeting the most price-sensitive consumers, and distribute through both consumer/gaming software stores of the time as well as mass market retailers such as drug and grocery stores. The mainstream mapping software players had almost no presence in these channels due to their higher price points. This entry level product, created with minimal development costs, allowed us to generate cash flow to fund our longer term segmentation strategy which was to target the B2B market. The mainstream mapping products were fairly generic and used by business people as well as consumers, but really designed for any consumer with no business-oriented features to speak of. We were able to create a premium, business-focused version of our product which we positioned as the mapping products for mobile workers/road warriors such as sales reps and service technicians. We included important business-specific features, such as integration with the popular CRM systems of the day, which weren’t found in any of the other mainstream mapping products of the day.

Important considerations in segmentation strategy

Hopefully we’ve established that segmentation of your software market can be a very powerful tool to compete with and outflank strong competitors and ultimately maximize the value of your business. So what are the important things to consider in formulating your segmentation strategy? Let’s look at a few:

Horizontal vs. Vertical – The first thing to consider is how horizontal your segment currently is and how vertical you think you need to be to compete effectively. There is a fine line here; the more horizontal you can remain (targeting multiple segments with the same product) the higher your product’s ultimate profit potential. But you must be realistic about your market position–go as “vertical” as you need to win–or your profit potential is likely zero!

Market Maturity – The more mature the market is when you enter, the more likely it will be important to segment smartly and attack a vertical niche. Of course this or any single factor shouldn’t be used in a vacuum to create a strategy–many factors need to be considered in your segmentation decision.

Market Size – The larger the market size, the more likely it is that it’s ALREADY segmented and will likely force you to do the same. There are several prominent potential exceptions here, listed in the bullet points below.

Market experience of the company - Do you know the market well, and just as important, are you known by the market? In cases where you’re known and understand your market well, it raises your odds of success even entering with a more horizontal approach.

Levels of funding – Big companies with massive resources or heavily funded startups may be able to successfully use a horizontal approach, although many confident late entrants of this type have failed in a variety of software market categories.

IP/Technology & other strategic advantages – A true innovator with market changing IP may also be able to attack and win in an established market using a horizontal approach, as they are effectively changing the ground rules of the market. But again, I’ve witnessed many companies very confident in their technical advantage that have ended up with their hats handed to them when competing head on in an established market.

Important upfront decision–but never too late to change

Like any important business consideration, it’s far better to optimally segment the market for your products up front then to wait until you are FORCED to do so. But just like a morning TV show, in the software business it’s relatively easy–at least compared to other technology categories such as computer hardware or semiconductors– and almost never too late to modify your target segments.

What’s your feeling on how best to approach segmentation in the software business? Post a comment so we can all benefit from your experiences.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on October 21, 2012

filed in B2C, Business Models, Corporate Strategy, Distribution Channels, Pricing, Product Marketing/Management, Retail, Software/Product Development, Startup/Early Stage

Separating Technology Wheat from the Chaff

In software and hardware businesses new ideas, technologies and products come down the pike at a rapid-fire pace. Many fail immediately and some muddle along before finally fizzling out. Some meet with modest success. Only a very select few turn into long run big hits. How can you tell which products will become hits, out of a sea of mediocrity?

Not many people can differentiate between these new ideas, technologies and products at an early enough stage to profit massively from it. Keep in mind I’m not talking about small successes, but the really big ones. The ability pick the big winners out early is a rare skill set, yet one that is applicable across a wide swath of functions including general management, product planning/management, inventors, venture investing, stock analysis/selection and many more.

Short of having a brilliant mind, multidisciplinary worldview and the ability to see the future—how do you go about maximizing bets on what will hit it big and what won’t? Here are some questions that may be useful to ask when making your evaluation:

Does it solve a fundamental problem, bend a cost curve or create a new playing field?

Not every new product is based upon a fundamental technical breakthrough—but it sure helps! After all, innovation is still the basis of the technology business. This is where you look first when seeking big ideas you can profit from, something that fundamentally changes the game in a particular marketplace. One of the most spectacular examples of a breakthrough that met all three of these criteria is the personal computer. It solved some fundamental problems of the time associated with mainframe computing, certainly bent the cost curve of computing downward (and continues to due so even today) and created an entirely new ecosystem with broad societal implications. Meeting all three of these criteria is a very tall order that you won’t see often, but passing one of these three tests is almost essential for a big-time winner with staying power.

Where does it fit in the marketplace?

There are certainly many great stories of fundamental research breakthroughs without immediate, obvious market applications that ultimately found a market and became a great hit. The problem occurs when the second step—finding a market—is given short shrift, or skipped completely. This can happen when there is pure excitement and the folks funding the project have a purely technical viewpoint. The number of big successes without expert market vetting is actually pretty rare although there have been some spectacular exceptions.

We’ve all heard of the invention of super glue by accident. And Thomas Watson Senior, Chairman of the IBM Corporation in 1943 was quoted as saying: “I think there is a world market for about five computers.” Five units do not make a commercial market, but IBM made the investment anyway—and look how that turned out. But in reality the number of fundamental breakthroughs in the research lab dwarfs the number of truly successful, innovative new commercial products. So it’s important to not get too excited about these breakthroughs until a commercial application becomes obvious and realistic. Avoid at all costs the proverbial “Cure looking for a disease”, regardless of the almost mythical stories of a few massive winners borne from purely technical circumstances.

How does it compare to alternative solutions, both current and forecasted?

After deciding the breakthrough isn’t a cure looking for a disease and which market segment it fits in, it’s also very important to evaluate how it stacks up vs. rival technologies and products. And not just with respect to a current market snapshot, but looking forward as well. Forecasting really comes into play here; which technical platform has the longest runway? An example is satellite TV vs. Cable TV. When Satellite TV came into play it took a lot of market share quickly by providing innovative new services which the utility-like Cable TV companies were slow to match. But in the long run the wired infrastructure of the CableCos may provide a strategic technical advantage in that long running battle that may enable a more advanced and diverse product set.

Do the owners have what it takes to bring it to market?

This question applies not only when evaluating someone else’s product or technology—but also your own. Realistic self-reflection is important here. There have been some great new innovations that have been wasted due to bad marketing, lack of financial resources or just plain ignorance and incompetence. These weaknesses often lead to the “ arrows in the back of the pioneer”, where the folks that initially bring out the “next big thing” fail or are quickly overtaken by a more tactically skilled competitor, who improves on the idea and/or out-executes them in the market. The software spreadsheet market is instructive here, conjuring up images of several bigger fish progressively swallowing smaller ones. Visicalc was the original spreadsheet innovator overtaken by Lotus who was then in turn overtaken by MS Excel. The resources and capabilities of the innovation’s owner matters a great deal in the long run.

Is it defensible?

This is what often separates the “flash in the pan” from a true long term winner. Defensibility can be defined by the traditional technology means of patents, copyrights and trade secrets. But there are more subtle ways of defense that can be very successful in the long run: branding, entrenched distribution channels, strategic partnerships and cost advantages.

Especially in the software and hardware businesses there are tons of fast followers, who are lying in wait for an emerging trend or new market segment, where they can apply deep resources and tactical skill to out-execute the pioneers. In hardware markets the major Japanese manufacturers long ago mastered this model by taking US inventions and productizing them cheaper and better. The large Korean manufacturers then found success with this same model and most recently it’s been replicated by the Chinese. In the software business Microsoft and other large software companies have grown by either mimicking or buying up technology leaders who have pioneered a new market segment. However it’s done–make sure the next big thing is defensible before betting on it becoming a big-time, long term winner.

Does it pass muster from every angle?

As stated earlier, it really helps to be a “renaissance man” man with a multidisciplinary worldview. But people meeting that description are in very short supply, so it’s really important to employ experts across several key disciplines such as technology, finance, manufacturing and marketing, to evaluate market potential and possible weaknesses. In the technology business marketing and technology are usually the key differentiating factors, so at a minimum make sure that expertise is brought to bear in those areas during your evaluation.

There you have my view—how to do separate the winners from the losers. Post a comment with your own view of this very debatable topic.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

No Comments by admin on September 8, 2012

filed in Business Development, Business Models, Corporate Strategy, Distribution Channels, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, market research

Are There Any Software Segments The Cloud Won’t Swallow?

It’s become pretty clear in the last couple of years that we are heading irrevocably toward a cloud-dominated future in the software business. The evidence is irrefutable. To attempt to get a traditionally licensed PC or enterprise software business funded by an institutional investor would be a suicide mission these days.

Whether it’s SaaS, PaaS, IaaS, Cloud-based, web-based, Internet-based—WHATEVER, it’s all still basically the same thing. Some folks get very snippy about all the different definitions, but they are all just different segments or interpretations of the same model: Software hosted outside of the customer’s premises and available via an Internet browser. Although the technology has improved dramatically over time, it’s really the same basic idea as ASP (application service provider) model from back before the Internet stock bubble burst.

In many cases this trend is happening for good reasons, with the primary one being the simplicity the model offers end-users. But like anything, it’s not the perfect fit in all instances. For example, I’m still not convinced this model will ever be definitely cheaper than solutions that rely more on local computing power. For that to happen, I think we’re going to need to go back to the era of much cheaper dumb terminals to replace our powerful PCs. Having all that desktop power and storage (and the associated costs) sitting on your desks unused is pretty inefficient.

In addition, I also don’t believe SaaS and other cloud-based variants are necessarily the most profitable business models for every software vendor, even though institutional investors love it. I recently had a conversation with a venture capitalist and I asked him why the VC community was so in love with software in the cloud, specifically SaaS-based models. After some discussion about the various elements of SaaS and customer premise-based software models, it really came down to something simple: traditionally licensed software companies are valued at 1-3X revenue and SaaS-based companies are valued at 5-6X revenues. Of course, it’s all about the money and this makes perfect sense. But will this valuation gap be sustainable, or is it a market inefficiency that will go away over time? But I digress, that’s a topic for a different debate….

There are some very good (and maybe not so good) reasons that certain segments won’t come completely under the spell of cloud-based computing. Let’s take a look at a few areas where I forecast the cloud won’t become dominant:

Banking

This is one of the toughest software market segments there is. Banks are notoriously difficult to penetrate, and security is paramount. I believe this will be one of the toughest segments for cloud-based solutions to penetrate, and will be even harder to dominate. Certainly they’ll be a lot of cloud-based applications in non-critical functions. But anything that gets at the core banking functions, including customer data or money will be kept private. That might be a traditional on-premises solutions or private cloud-based apps, but anything sensitive from a security viewpoint will be held tight.

Government

I believe this will be a similar situation here to the Banking market. Certainly the Cloud has already penetrated many areas of the government, and will continue to do so. But there are larges segments of government services where the data is just too sensitive. We’ve seen a lot of embarrassing breaches lately with respect to intelligence data that absolutely needs to remain secret. I think we’ll see a pullback from this data being available via the Internet, rather than moving deeper in that direction.

Open Source and Mobile

Outside of the cloud, these are the two software segments that institutional investors will still put money into. It’s true that many mobile applications have a cloud-based back-end, and a lot of Open Source platforms are used to generate cloud-based apps. But both of these areas represent code that will sit on customer-controlled assets and will slow the adoption of a centralized model where all computing is done in the publicly-accessible cloud.

Buyers vs. Renters

Some folks just like to own stuff. While the rental model works for many due to the reduction in software and hardware investment, which saves capital for other purposes, others feel that renting is wasteful. Indeed, SaaS and other lease/rental-oriented models aren’t necessarily the cheapest in the long run. This is really a psychographic attribute that isn’t likely to change among those so-inclined.

100% Service Levels required

The Internet is a long way from the old AT&T Ma Bell monopoly when it comes to service levels. Have you ever had the power go out at a company you work at? In this day and age, when that happens, everything immediately stops. With the every-increasing reliance on Internet-based technologies (and being accelerated by cloud-based apps), the Internet connection going down can have roughly the same effect. The Amazon EC2 Cloud Services outage in April 2011 gives a sneak preview of what can happen to productivity levels if service levels are compromised on a wide scale or for a long period of time.

Security Conscious (and the Paranoid)

There are many out there among us that have their own safes rather than using a Bank’s safe-deposit box, or are building safes rooms or bomb shelters to protect against perceived threats they view as inevitable. Many others are simply very cautious and prudent, and that means holding things close to the vest and not embracing the newest technologies until they are viewed as bulletproof. The profiles vary from the prudent to the paranoid, but the common thread will be slow or no adoption of technologies that are viewed as giving up control of something important.

As we embrace cloud-based applications at an extremely fast rate, my own feeling is that we are headed toward a major, high-profile event that will slow adoption considerably. I’m not sure what form that will take, but it could easily be a major data security breach that causes real damage to a lot of people, or an Internet-based outage that brings a bunch of businesses to their knees. There are many examples already which support that these types of events are quite possible. Several times a year now I get a notice that my private data has been compromised by one vendor or another. The Amazon EC2 outage discussed above already gave a number of people pause about being held captive by this model.

So that’s my take on some areas we’ll see little (or at least slow) adoption of public cloud-based software models. Do you see other areas I left out? I’m sure this will be a bit controversial as well—some out there disagree and believe the Cloud will take over the world. I’d like to hear from all of you, regardless of your view. Post a comment to add to the debate.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

5 Comments by admin on May 29, 2012

filed in B2C, Business Models, Corporate Strategy, General Management, Operations, SaaS, Software/Product Development, enterprise software

Optimal Levels of Formal Process in High Tech Companies

The level of process in an organization is a pretty esoteric topic that I haven’t seen discussed very often, or in very much depth. Yet I believe it is critically important to any CEO looking to grow a company, particularly a software or hardware technology based company.

The reason I believe it is so important is that, in aggregate, how process-oriented your company culture is effects every nook and cranny of company operations. Oftentimes, however, senior management doesn’t even explicitly think about how much process they want governing company operations. More often than not, this part of the culture grows in a random and haphazard manner, driven by unforeseen key events that shape the level of process. Sometimes the level of structure varies dramatically by department. In these cases, managers below the senior executive level usually are driving department cultures that may or may not be process-oriented, depending upon their own operating styles. The key takeaway here is that process levels often aren’t being driven strategically, but occurring tactically or even haphazardly. This is usually a mistake–here’s why I think so.

In technology companies, in particular, the level of processes can make or destroy your business. There are three reasons that I feel there is much more sensitivity in high tech companies to process levels:

The rapid evolution of technology and technology markets
The need to innovate if you want to thrive in technology businesses
The necessity and difficulty of constantly ‘taming” new technology

I’ll use as an example a recent experience with a client to illustrate my point. The client is a small but growing software company. They have in their culture a high level of chaos, as is common with many growing, young software businesses. The company was bootstrapped and grown out of what started as a service business, and possesses very little in the way of corporate controls or processes.

On the positive side they are very responsive, fast-moving and innovative, able to capitalize on changes in technology and inefficiencies in the market. These are very important qualities in a software startup, particularly one of the thinly capitalized variety. These attributes are the very reason they’ve been able to crack through the very early stage that kills many startups, and has allowed them to grow and thrive.

But there’s a flip-side to this type of unstructured corporate environment, however. This company lacks the discipline that is required to “stick to the plan”. Indeed, there is very little planning going on to begin with! This operating style fits great in the segments of the business where innovation is critical, such as conceiving new products. But in other areas where a more disciplined, structured approach is important, performance is much lower and is a drag on company results. While excellent at conceiving and quickly prototyping new products, follow-on releases often come out much later than planned. QA is not a formal function and the initial new releases and documentation are lower quality than they could and indeed should be. The website has very little oversight and is littered with a lack of consistency, broken links, old content and grammar & spelling errors. We’ve worked on correcting these problems — carefully — without killing the very environment that is enabling success. It’s tricky to fix without “throwing the baby out with the bathwater”.

This is just one example, and of course the level of process needed to run IBM optimally is fundamentally different from that of an early stage software startup. In your particular company, it may be very important to have a high level of formal process in one department–and just as important to minimize the level of process in another. This may be quite different altogether in other companies.

So how do you know that you need to adjust your level of process in a strategic sense? Here are a few guidelines to get you thinking about where your process level stacks up vs. what may be optimal:

Your competitors are beating you to the punch

This is a sure sign that you are bureaucratic and process-oriented relative to your market. While there may be good reasons for the processes you have installed, being consistently behind in responding to market needs can have a very negative effect on your growth prospects.

You are constantly releasing “flawed” products into the market

This is the converse to the first point above. It usually indicates you moving too fast, with too little process and structure in product development, QA and release. In truth, the end results of this approach is usually worse that being beaten to market.

Employees are complaining about so much process

I always listen to what employees are saying; they are the “canary in coal mine”, often a leading indicator of issues that later show up in your financial statements. The caveat here is that these types of complaints can also indicate a hiring problem. Make sure you’re not hiring people who’s operating style aren’t a good fit with the way the company needs to operate.

Employees are complaining about the lack of process controls

The converse to the point directly above is when employees are complaining about how much chaos exists in the company. While the point above about watch for hiring mismatches rings true here as well, this is often the time you need to take a hard look at adding some structure to how you operate.

There’s absolutely no “chaos” in your organization–and little or no innovation as well

I have a rule of thumb when it comes to pricing new products: if no one is complaining about price, you probably are leaving money on the table. My “chaos corollary” is similar: if there is no chaos in your operations that folks are complaining about, you probably have created an environment so process-oriented it will limit your innovation and resulting revenue.

Generally speaking, I have a bias towards a little less process and a bit more chaos in software and hardware companies. Often excessive process is just a bad band-aid covering up poor hiring practices. Nothing allows you to minimize process like a strong, responsible, empowered group of employees. Creating the environment to hire and retain highly responsible people generally leads to a company getting done everything it needs to, with a good level of innovation to boot–while keeping formal process to a minimum.

I recommend holding off adding new processes until you absolutely have to, because going the other direction is much more difficult. But in fact, it’s important to have the proper balance if you want your company to function optimally. Analyze what the proper level of structure and process is not just for your company overall, but in each discrete operating segment of your business.

There you have it–my view on how to analyze and instill the proper amount of formal process for your company. What’s your view on this topic? Post a comment to expand the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

4 Comments by admin on April 21, 2012

filed in Business Models, Corporate Strategy, General Management, Operations, Software/Product Development, Startup/Early Stage, enterprise software, hardware

Starting Software Product Businesses Within Service Companies

The focus of my consulting practice is on commercial software product businesses, whether traditionally licensed, mobile, open source, SaaS–or some combination of all. While many software product businesses are originally organized with that purpose in mind, a remarkably large number of others started in another business. Let’s take a look at a few service-oriented scenarios which tend to grow into or spin off software product businesses:

Software (consulting) services

It’s very common for a product to be developed out of a software services company, which can mean a range of services such as consulting or outsourcing. These companies are being asked to design/create full applications, either for internal use by end user customers or as actual commercial software products. As a result, these service companies are in good position to recognize software product opportunities; sometimes these products are created by a funded service contract (if the service company is savvy enough to retain code rights!).

Government contracting

This is a very similar situation to the Software Services example above, with a couple of important differences. Government contractors are often not pure software development organizations; they may create hardware or provide other services as their government customers dictate. So they may not have a culture which emphasizes software development. Even more importantly, it can be tricky to retain rights to code developed with government funding–contracting expertise and an upfront emphasis on rights retention are critical in these circumstances.

Hardware/Systems

Another common scenario is software developed within a hardware or systems-oriented company. While not strictly fitting into the service category, I’ve included this example because it’s another common way software product companies are started that doesn’t fit the traditional methodology. The fact is that even in hardware companies these days, most of the innovation and IP is software-based. So it’s not at all unusual to see software developed as part of a systems approach that is later seen as having a market as a standalone application, apart from the hardware. Many successful software companies have started as spin-offs from hardware or systems-oriented companies.

VARs

Here’s another slightly different flavor of the Software Consulting Services example we began with. VARs are solutions providers for end user customers and are frequently asked to extend existing applications which are lacking in some way, integrate these solutions with other applications, or even write a standalone custom application. They are therefore well-positioned to get an early view of (and sometimes a customer-funded head-start developing) products needed to satisfy unfilled end users needs.

End user

End users often have in-house development capabilities and develop their own applications. In this case, the “service” organization is the internal IT department. These applications are often developed because of a “hole” in the existing commercial product offerings available in the marketplace. Forward thinking organizations may further develop and then spin-off these internal applications into commercial products.

So that’s a look at how organizations which aren’t-software product-oriented end up with a software product business. It can be a really great way for a software business to start–but there are many things that can prevent the successful transition into a going concern software product business. Here’s a list of a few:

Issues Which Can Prevent Success:

Culture

This is a frequent culprit in the failure of product businesses which are developed in the various service environments as discussed above. Depending upon the parent’s business, a mismatch in culture can come from a lack of understanding of either the software or product aspects of the resulting new business. For example, the management team of and “end-user” company that has developed a product may not be sufficiently software-savvy to make the right decisions to put the new business on a solid footing. A business executive in a software services company may not understand what it takes to develop a product to commercial product standards, or successfully market it. One of the biggest mismatches in culture often occurs within a government contractor. The “common business sense” required to be successful in the contracting business is shockingly different than that of a commercial software product business. The cultures are nearly polar opposites–It’s like English vs. French.

Capitalization

Often the cultural differences listed above or low overall capitalization of the parent company leads to the most common problem of these software product spin-offs: lack of proper initial capitalization. One of the attractive aspects of the software business is that it requires much less investment capital that a manufactured goods business–but it’s still a product business. Product businesses require more capital than service businesses. So even if you’ve created a great mousetrap, if you don’t have the money required to continue to develop it as well as market it–at least until you’re cash-flow positive–failure is quite likely.

Not productized

Maybe the most common problem of all is the lack of “productization” of the software application prior to launch as a commercial product. The level of usability, functionality and reliability required in the commercial product marketplace far exceeds the standards of the custom software application market. When you are supporting a single company directly with a custom app, you can afford a level of support which can overcome minor deficiencies in the areas listed. Once rolled out to a mass market of users in the software product marketplace, these deficiencies can kill a promising new product very quickly.

Me-too Products

One of the areas of expertise lacking in a service-oriented company (almost by definition) is Product Marketing/Management/Planning. The lack of this functional expertise can lead to a number of mistakes. One of the elementary mistakes that I see surprisingly often is not ensuring that you are making a novel “contribution to the market”. A software product startup with the 19^th product to enter an existing market, with no discernable competitive advantage, is a great way to lose money.

Lack of software product industry experience

If you add up the potential mistakes listed above, most of them can be mitigated by the addition of software-product company operating experience. Sadly, in many instances the parent service company senior management is too proud or simply ignorant and unable to acknowledge this weakness. This potential weakness can be alleviated by hiring an experienced operating executive, or retaining a software product industry management consultant such as PJM Consulting.

The bottom line to all of this is that there are alternatives to the more conventional approaches of creating a traditional investor-funded or founder-bootstrapped software product company. Whether created intentionally from the beginning or a “happy accident”, companies started this way can provide an advantage of significantly reduced capital-requirement-to-profitability compared to traditional startup methods. But there are potholes and roadblocks that must be avoided to prevent crib death of embryonic software startups born this way.

So that’s some of the lessons I’ve learned with regards to creating product businesses from service companies. Is this something you’ve done or witnessed others attempt?–what were your results? Pitch in with your two cents — post a comment to expand the discussion.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

7 Comments by admin on March 23, 2012

filed in Business Models, Corporate Strategy, General Management, Product Marketing/Management, SaaS, Software/Product Development, Startup/Early Stage, VARs, hardware

Extending Your Technology With Spinoff Products

Many software and hardware businesses, particularly smaller ones, are religiously focused on a specific vertical market. As well they should; focus is one of the most important attributes that can bring a business from startup to a strong growing business. This is often one of the key areas I concentrate on with many of my consulting clients. Many businesses just can’t turn down any sort of deal, no matter what the effect it has on their existing product development plans or other key corporate initiatives.

But there is another side to the focus issue. Many tech companies have developed excellent, mature technology bases at huge expense. If that basic technology has a horizontal appeal, it can be quite profitable to spend a modest amount of additional effort to bring that technology to other adjacent markets that the company is currently not serving.

Care needs to be taken, of course, to not spread your marketing efforts too thin. But if you’re smart about it your company can increase, sometimes dramatically, the return on its product development investments. Let’s take a look at a few potential tactics, all of which I’ve used successfully both at companies I’ve run and with consulting clients:

Customize your products for adjacent markets

As an example, maybe you have an ERP software package aimed at retail markets. It might be quite easy to customize the product for other inventory-oriented businesses, such as distribution or service/repair businesses. By doing this you’ve created a potentially large new revenue source, at a fraction what building that product from scratch might cost. The trick in this instance is often marketing the product–read below for a couple of ideas on how to accomplish that without doubling your marketing budget.

Private Label/OEM products

Private labeling or OEMing your product to another vendor can be an excellent way to extend your product development ROI. It might be as simple as partnering with a non-competitive vendor who takes your existing product “as is” or with minor modifications, as well as changing the product identity and labeling. The target partner would be a company very strong in a market segment that you aren’t successful in, have no interest in directly marketing in, or simply is beyond your resource level. If done well, this is a win-win for both companies. Your company gets additional revenues with little to no additional costs (“pure profit”), while your partner gains additional revenue in it’s target market–without any product development investment.

Integration & bundling with other products

One of the best things a software vendor is to create a “developer’s version” of it’s product, which essentially consists of creating APIs (application programming interface) to the software. This allows easy integration with complementary software applications and even hardware. Back when I was CEO of a mapping software company with limited resources, we created a developer’s version which enabled both integration and bundling with a number of complementary applications, notably in the real estate and CRM segments. Once again, this tactic required only modest product development investment and enabled us to draw revenue from a number of different markets. We would never have had the resources to pursue these markets if we tried to build a new product from scratch as a company would traditionally do.

Different price points

Using my favorite mapping software company example, we were often forced to think creatively to wring out as much revenue as we could out from our existing technology. One of the other tactics we used was “de-feature” our existing $99 high-end consumer application to create a $9.95 version, which we then sold through mass market retailers of all kinds. Not only did this create more revenue, but the high volume business also created a bunch of opportunities to upgrade these entry level customers to our higher-end core product. This is a strategy I’ve used many times; you almost can’t go wrong when creating a larger customer base for your technology. I use the simplistic phrase “the more you sell, the more you sell” to illustrate the advantages of this approach.

Business vs. consumer version

At that very same mapping software company we used one other great approach to extending your technology: creating a B2B version of our consumer product which was aimed at road warriors such as sales and service professionals (the converse works just as well). The B2B version had a few additional features and we sold it via different channels and strategic partners. It didn’t have the unit volume of the consumer version, but the margins were much higher.

So there are a few ideas on how to extend the use of your IP to increase your overall ROI. What are your ideas on creatively utilizing existing assets to create additional growth? Please post a comment with your own thoughts so we can all benefit.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

1 Comment by admin on December 5, 2011

filed in B2C, Business Models, Corporate Strategy, Distribution Channels, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, enterprise software, hardware

tagged B2B, business model, channel, consumer software, distribution, early stage, growth, hardware, high tech, management, PJM Consulting, product, Product Development, software, startup, strategy, tech

Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

BYOD, Enterprise Mobile ISVs and Cross-Platform Support

Software Product Marketing: Horizontal vs. Vertical

Software Company Diversification

A Software Startup Video Case Study

Musings on Software Market Segmentation and TV Morning Shows

Separating Technology Wheat from the Chaff

Optimal Levels of Formal Process in High Tech Companies

Starting Software Product Businesses Within Service Companies

Extending Your Technology With Spinoff Products

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