* The Business of Software

A former community discussing the business of software, from the smallest shareware operation to Microsoft. A part of Joel on Software.

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Andy Brice
Successful Software

Doug Nebeker ("Doug")

Jonathan Matthews
Creator of DeepTrawl, CloudTrawl, and LeapDoc

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BreezeTree Software

Bob Walsh
host, Startup Success Podcast author of The Web Startup Success Guide and Micro-ISV: From Vision To Reality

Patrick McKenzie
Bingo Card Creator

Rent-IT Stores

I'm working on a business case for bringing creative marketing work in-house.  Outside ad/marketing agencies in the GTA (and the same applies to any place in the world with lots of head offices) are getting greedier and lazier all the time.  I had a meeting with someone in our R&D department who researched adopting CATIA software for some of our product lines.  CATIA was developed by Dassault, the company that makes Mirage jets, and is to AutoCAD what Porsche is to Tatra.  It's not just the licensing that is outrageously expensive, it's the supercomputers and computer engineers (in the true sense of the title) that you need to add to your organization that make this a huge strategic capital investment.  My project is much less ambitious, but it got me thinking about a new business model for software.

This is still consistent with my opinion that software developers shouldn't sell subscriptions.  Car manufacturers and jackhammer manufacturers don't rent, they sell to intermediaries that rent to end users.  End users can still purchase cars and jackhammers if they want, but if you are working in another state for a limited period of time, why buy something expensive you won't need after a month.

Now Microsoft and Adobe are already renting software.  Which is fine, but even if every employee had a subscription to Office365, and marketing had subscriptions to CS6, it doesn't mean our software needs would be looked after.  We can't afford to keep experts in Photoshop and web services on staff when we only need their services a few times a year.  I'm not going to try to find those experts myself on Craigslist, but I don't want to spend big bucks explaining my business needs to a consultant and having to pay him to advise me how to do something I already know better than he does. 

If I could bypass the consultant, and rent a Photoshopper or web-servicemaster for a month, to simply implement our requirements, using professional grade software, I would be much better off.  My analogy breaks down in the sense that I need to hire the tool operator as well, but local Rent-IT stores could call up their vendors to get pre-packaged services that our employees could handle. 

I'm not looking to put anyone on this board out of work, we have to deal with prime IT contractors who subcontract out everything to developers that we have no connection to, and not only does it turn every little project into a six month process, it adds all kinds of cost to the final result.
Howard Ness Send private email
Saturday, September 14, 2013
 
 
CATIA can seem expensive but most corporate organizations use CATIA. SAP can seem expensive but again it is the standard in corporate world, and the list could go on.

Everything sold to corporations SHALL be expensive because selling to corporate world is a very expensive. Presentations, contacts, meetings ... can easily cost 10 K. If you consider a win rate of 20% (that is optimistic), only the sale cost is 50K. How can you recover it with 1-month rental?

The case of MsOffice and Adobe is different: there is o sale involved, in practice buyers are acquiring commodities that everybody already knows and recognize as "de facto standard".
Franco Graziosi Send private email
Saturday, September 14, 2013
 
 
"selling to corporate world is a very expensive"
Believe it or not, it is expensive because the corporate world isn't buying.  The corporate world has been in maintenance mode for 10 years.  That means almost all of the corporate world's IT budget is going to existing ERP systems from SAP, accounting systems from Oracle, Notes from IBM, desktop software and network infrastructure from Microsoft.  Which doesn't leave any real money for in-house IT, either. 

Enterprises still need software as their business changes, but the old business model for selling enterprise software hasn't worked  since everyone paid their bills for handling Y2K audits.  Every purchase needs to be matched to a single sales or cost cutting initiative.  No one has time to meet with new vendors or to experiment with new software.  If anyone wants to sell something new to the corporate world, those are the parameters they have to work inside of.

"most corporate organizations use CATIA"
IANAE, but if the organization doesn't need to worry about fluid mechanics, they probably don't have CATIA.  It's a really big investment, because not every mechanical or electrical engineer can run their Crays without very expensive support.  No profitable business has an unlimited R&D budget.
Howard Ness Send private email
Saturday, September 14, 2013
 
 
Howard, please just keep thinking and telling fellow developers that corporates are not buying from unknown entities and people like me will have less competition and will continue to make money.

In my experience, it is a myth that corporations are unwilling  buy software from small software outfits. The myth is mostly propagated by failed entrepreneurs and  corporate bunnies trying to justify why they never moved away from the water cooler.

Obviously, if you try to compete head on with the likes of SAP, you'll have a tough time, but there are definitely niches that are not served by these giant companies.

If you have a good product that serves a particular niche, it offers value for money, and there is a real business case for buying it, corporates will buy. I can testify to this fact, since we've sold our software to thousands of corporates.. now serving several million users. It all started with one guy burning the nightnight oil  in a one bedroom apartment .

Keep the faith!
jamieb22 Send private email
Sunday, September 15, 2013
 
 
"I'm working on a business case for bringing creative marketing work in-house."

To  whom are you making this case to? Your fellow employees somewhere?




AC
Reluctantlyregistered Send private email
Sunday, September 15, 2013
 
 
"To  whom are you making this case to?"
To upper management, as part of global business unit planning for 2014, although each division in major markets has a lot of autonomy over advertising and promotion.  We have someone who can place ads and organize trade shows, etc., but that person doesn't have the time or the ability to do the creative work.  To be competitive, we need to look like we hired the best firms on Madison Avenue, but our annual spend is too small to justify the necessary retainer.  When you start spending $10,000 to get a dozen product illustrations, and you have thousands of skus, what we are currently doing doesn't make economic sense.  And each division in each major market is unique enough that we can't get economies of scale by buying globally.

"there is a real business case for buying it, corporates will buy"
It's a question of scale.  The total cost has to be small enough that the purchaser can get reimbursed without getting authorization.  The software vendor has to have an economical way to reach purchasers.  Purchasers have be few and far between within the corporation; if you want to sell to everyone in the company, you need to get company-wide approval (which eliminates any economical way to reach purchasers).  Within those restrictions, whatever opportunities there are go to a few mature, relatively well-known products.  Which means that if you are one of a million new mISVs trying to sell to large businesses instead of individuals you are better off to buy a lottery ticket.  It's not a very good business case for the vendor.

I'm a wannabe developer who is in a position with a large business to recommend the purchase of enterprise software, and my 25 years on the business side of the corporate world leads me to believe that the current conventional wisdom  of finding a niche without competition and putting up a website so you can start selling software is a dead end.  With the Internet, even blind squirrels find the odd nut, but you can't plan your retirement on that strategy.
Howard Ness Send private email
Sunday, September 15, 2013
 
 
> rent a Photoshopper or web-servicemaster for a month

I'm not completely following.  It sounds like a high-end guru.com or elance.com?
Doug Send private email
Monday, September 16, 2013
 
 
I don't need an eBay version, what I need is a dependable local source of colour by number software.  I don't think such a thing exists, but if I could rent someone to walk a staff member through the preparation of marketing materials (we know what we want the content to be), or setting up a web service (using our existing databases and websites) on an as needed basis without signing up a contractor (because the good ones are in high demand and don't need to quote on our piddly little jobs),  I could accomplish a lot more with my budget.

Right now, our IT spend is rationed in every department and it is getting more difficult to get funds for IT when it costs so much to get only a few key projects looked after.  That's where I see the opportunity for someone new, because spending 100% of our budgets on what is essentially maintenance doesn't help 99% of the developers out there.
Howard Ness Send private email
Monday, September 16, 2013
 
 
I'll try to provide an almost real world example.  Say we have a new line of electric motors for use in underground mines.  Our salespeople need brochures, and our website needs some video to demonstrate what is different about these motors.  We have people who have access to mine sites, who could hold a video camera, but don't have a clue how to set up a shoot, and we have product specialists who can write a technical sell sheet, but can't format their own family newsletter.

 We need to add the new products to our ordering and manufacturing programs and because they are so specialized and starting a new mine is a multi-year project, orders have to be booked in advance and customers have to be able to update their future orders as they get further along in the engineering process.  However, the sales volume doesn't justify hiring an IT contractor to develop unique software to handle this special market, which is very different from the other markets we sell to. 

We also need a program that customers input their requirements into and get back the quantity, model and cost of electric motors to complete the project, without telling the salesperson, who they don't really trust for impartial advice.  No freelancer is going to understand the technology well enough to develop that program without constant oversight on our part, but if we had a template that an engineer could put the formulas into, and presto we have a web app, we could do it in-house.

Before I get authorization to spend a dollar on freelancers, contractors or consultants, I need to have a firm final cost for all of this, so my managers can determine if these motors can be sold in a competitive market for a profit.  Who knows when the next time I need video production will be?  If I post the job on elance, I can't count on the bidder I chose being available when management finally gives the green light, and getting the freelancer safety certified and transported to a cooperative mine site is going to be more expensive than the video shoot itself.

For someone who deals with expert videographers, graphic designers and web app developers on a regular basis, it is much less difficult to a) access those experts when needed and b) have an inventory of templates or frameworks or tools that only require some tweaking on the end user's part to get results.
Howard Ness Send private email
Monday, September 16, 2013
 
 
There is something I don 't understand. You want to pay someone to produce a good video of a mine but you are worried the transportation costs are too high. Try to hire 2 people, one near the mine that is good with setting shots, and another that is good at editing and storytelling... The former will tape according to the editor requests and then deliver the video by internet or dhl...

This is not your problem. It seems that the problem is that the company when building a new product doesn't add the costs of marketing into the product price and don't allocate the proper amount of money upfront. Perhaps this is a too big company with too many departments
fp615 Send private email
Monday, September 16, 2013
 
 
"This is not your problem"
It's my problem because I'm a business analyst for sales and marketing at the company building the electric motors.  I picked an underground mine for my example because you don't just drive up to the headframe and ask someone to take you underground.  The same thing applies to all kinds of industrial jobsites, you need to have special certifications and high level permission to go on someone's jobsite.

The main problem that I'm facing is that we only need the services of programmers, graphic designers and other creative people on an occasional basis, and when we do need their expertise we have a much better idea of what we want the final product to look like than the outside experts do.  The best way to describe it is colour by number.  Supply us with professional gear, a set of fill in the blank instructions and a help line in case we run into unanticipated problems, and we can produce our own videos.  But we can't justify buying the gear and hiring someone just to do videos.  You could apply the same idea to custom software, web design, etc.
Howard Ness Send private email
Monday, September 16, 2013
 
 
So I can be a business analyst if I can find the correct "colours" :-)

As an amateur videomaker owning 3 full hd cameras I may say that I may never produce images similar to the ones produced by a medium-level pro.

And a medium-level pro can produce good images using the camera on a mobile...

While I think it may be easier to produce a technical brochure using a template, I strongly feel this is more difficult for video
fp615 Send private email
Tuesday, September 17, 2013
 
 
I think what you're asking for does exist. At least when it comes to software like Autodesk products, and CATIA. It's in value added resellers.

Purchasing any CAD package and using it is a huge investment for companies. There's the software costs, implementation costs, management of the software costs and then hiring the personnel too operate the software that understands the business products. Many VARs also have a technical services where they will do whatever you need done using the software for you. You get the files in the end even if you can't open them yourself.

Companies I've worked for utilized services like this from our resellers just for that purpose. The cost to do it in house was to great. And we weren't sure we could justify the cost. So we have them do it for us and we supply the needed criteria. The problem with these services is that often you may need someone who can completely understand your business. Or understand it enough to get something back useful. And if it's a large enough project or becomes something ongoing it can get very costly. At that point its brought in house. The other thing is with business software use it becomes very niche work. Or at least a lot of businesses view the work they do as very specialized to the point that they can't just hire it out or get a temp for it.

The company I work for uses Autodesk Inventor. Prior to that everything was Autocad. As our customers started requiring 3d models of designs we had our local reseller develop the models for us from our 2d drawings. Eventually we got a large enough project that we purchased a copy of Inventor to model in house.  Originally we hired people on a temp basis that was skilled enough in mechanical design to model the project under the supervision of another engineer. Eventually we sent all the engineers to get trained on 3d modeling. The same happened for FEA, and electrical designs.

Another CAD manager I know has recognized that there could be a market in doing CAD work for companies that don't want to or can't justify the cost to hire onsite staff for design work. He's working up a business model to fill the space between doing it in house or having a VAR do it. When someone needs occasional CAD work done his business can do it. Most VARs see it as an opportunity for selling software or something that's done as an extra service if you've bought software. At that point some resellers have partnerships with contractors that they put companies in touch with when they need occasional specialized needs.

With something like your video work may be you need to get a publishing house on some type of retainer. Maybe you need to find someone who already has the equipment to work on retainer for you.
TrippinOnIT Send private email
Tuesday, September 17, 2013
 
 
"At least when it comes to software like Autodesk products"
You're right, and I can see something like this working for website development, although there is much more competition and diversity in that field.

The thing about a website is that it is nothing without data and creative works (images, video and sales copy).  Just like your example where engineers are doing the actual design, and VARs offer tools and services to implement the design, what I would need from a website VAR is tools and services to get sales and marketing content ready for publishing, not someone to publish it.

AutoDesk has a virtual monopoly in the small to mid-level CAD/CAM market because of how it uses VARs to market its software, not because they produce brilliant software.  When Dreamweaver was the standard for web page publishing, Adobe had a chance to dominate the web development market, but they never realized that the Internet is a way to get and push information, not publish pretty graphics. 

As a buyer of web development services, I don't want one vendor to have a monopoly like AutoDesk.  But I can't afford to go shopping in the bazaar every day, either.  Somewhere in the middle is a lot of opportunity.
Howard Ness Send private email
Sunday, September 22, 2013
 
 
"If I could bypass the consultant, and rent a Photoshopper or web-servicemaster for a month, to simply implement our requirements, using professional grade software, I would be much better off.  "

You can do that. There are 1000's of photoshop/web-service contractors out there that you can hire. But you are not going to save any money by asking them to use your version of photoshop. And while they are not as expensive as hiring a consultant to hire them, they are still going to cost a pretty penny.
Foobar Send private email
Monday, September 23, 2013
 
 
"There are 1000's of photoshop/web-service contractors out there that you can hire"
Agreed, but large companies can't and won't go through the process of finding and hiring suitable individual contractors.  I'm sure lots of people on this board can give examples of exceptions to that rule,  but the reality is that large companies in any field will avoid taking this route if at all possible. 

"they are still going to cost a pretty penny"
Large companies are still spending millions on prime contractors, the problem is getting small projects done on a timely basis without additional spending that makes the small projects unprofitable.  Those small projects require some professional tools and services that aren't available in house, but they don't require bespoke software or creative genius, either. 

Updating an online catalogue is another example of an intermittent project that requires services that even companies with revenue in the billions won't be able to provide with full-time staff.  Services as simple as digitally adjusting product photos to show key features and revising the customer billing pages to accommodate new purchasing terms. 

What I'm looking for is a single vendor who can set me up with whatever I can't get internally on short notice, and not bill 200 hours at $250/hr for finding and hiring 5 experts who really only need to spend about an hour each to apply the right filter or tweak a template.  Those 5 experts could scale their time by selling specialized software and services to a relatively small number of full-time vendors, who would then deliver software and service on an as needed basis to thousands of corporate clients.

The Internet makes the rare seem commonplace, but there is vastly more opportunity in doing business in structured, multi-tier markets.  In previous centuries, the problem was physically moving people and products from suppliers to customers, now the problem is getting the right people and products from suppliers to customers.  In the end, you still need intermediaries.
Howard Ness Send private email
Monday, September 23, 2013
 
 

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