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| Home - Industry Article - Feb 03 Issue |
The Future of Software
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Short term, this consolidation is accelerated even further by the fact that thousands of venture – backed companies are still burning through capital raised at bubble valuations. To prove viability for the next round of investment, price cutting and heroic acts are the norm. Unfortunately, this willingness to drive business at any cost means even more price pressure to the industry as a result of the abundance of financed competitors who are willing to do absolutely anything to establish relevance. Of course, buyers have learned to hold out for the best deal – and the circle continues for now.
The very good news is that what we are seeing right now is not unique and not even a bad thing per se. It’s akin to passing through adolescence into adulthood. In the absence of STINKO, the economy and high-tech industry is turning the corner short-term and much of the air has come out of the bubble of the late 1990’s. Opportunities for those willing to innovate in new ways abound as always. But long-term, the maturing of the software industry will not abate short of the unknown “next big thing” (please email me if you are the next big thing…) Here are a few thoughts to consider about the implications of a maturing software industry:
| ATTRIBUTE |
POTENTIAL CHANGE |
| Leadership: |
From being technology and visionary sales led to being more marketing and finance-led. Core competencies needed: customer intimacy and operational effectiveness; Process improvement; Developing an effective culture. |
| Business Model: |
Moving from a product or custom-built model to a transaction services and outsourcing model. , Think ADP rather than Microsoft, SAP, Intel. Roll-ups, acquisitions and mergers will increasingly be able to fuel growth with less risk of technology incompatibility. The technology can be the backbone of internal process innovation….think Blockbuster, Starbucks, Mrs Fields. |
| Innovation: |
Consider the difference between innovating around applications and new categories to innovating around processes, performance and end-user experience. |
| Value Migration: |
For most businesses, value will migrate from the enabling software technology to the ability to improving the customer’s core business process. That implies deep knowledge of the domain and/or customer, market targeting. |
| The Home Run: |
Fewer ‘platform’ opportunities will be real. Dominate and protect major niches through deep customer relationships or unique solutions for specific markets. Don’t get suckered into horizontal platform marketing without serious evaluation of the risk/reward tradeoffs. Getting viable in a niche first is likely the better bet. |
| Private Investment: |
Will likely move from early stage venture capital or IPO to more traditional private company financing means such as debt, personal and private investment. Increased funding will seek out special situations and/or mature teams with proven models. |
| Shareholder Value: |
From hot categories to hot financial performance. The importance of predictability and risk mitigation will increase. Growth in revenue, PLUS backlog and/or deferred revenues, successful market penetration, increasing profitability will have the spotlight. |
| End-Game: |
Acquisition or merger as opposed to IPO. Requires investment and strategies to ‘set the deal’ through appropriate partnering well in advance. |
As far as STINKO goes, the likely short and long-term impact on the economy is unknowable. Consider this: events similar to what we are seeing unfold today are not historical anomalies. Sadly, peace, harmony and economic certainty are the actual anomalies in our history. Past generations have invented, prospered and continued to build businesses through such uncertain times. Now we must each choose personally to do the same. Investing time into supporting, helping or changing government policy as it relates to STINKO is a personal choice. But if we do not choose to invest our time in this way, the need at hand is simply to avoid the displacement of positive thinking with any negative thoughts about what is unknowable, and to focus all our energies into improving the world through the means and technology that we each have at hand.
A Managing Director with The Chasm Group since 1995, Michael Tanner provides advisory and consulting services in the areas of new venture development, market development strategy, operational planning, portfolio investment strategy and market positioning. Mike can be reached via email at: mtanner@chasmgroup.com.
 
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