Archive for the ‘Software Industry’ Category

Told you so: RIM, Apple, Google Tied In Smartphone Race

Back in mid-2008 the smartphone race was rapidly heating up. The App Store had just come out and experts were trying to predict who is going to be the winner in the space. While journalists, bloggers and pundits were pondering whether the iPhone will be the one to win it all,  I stuck my head out and called a “no winner” scenario.

Recent research from the Nielsen Group suggests that we currently have exactly that, with all 3 major smartphone platforms – RIM, Apple and Google, tied for 27% market share or a little less than 1/3 of the total market.  Here is the link to the original post.

It should be noted that the data in the article is from the US and excludes the remaining 6+ billion people in the world, many of which don’t have the same buying patterns or consumer preferences as their American counterparts.

Still, it is one tied race with no clear dominant winner. And it will likely stay that way for a while, especially with Microsoft joining in the race (never underestimate what the giant from Redmond can bring to the table) and Nokia taking the plunge.

Another Reason To Launch Your Start-Up Now: Inflation

They say a recession is a good time to launch a startup. It seems a bit counter-intuitive at first, but on second thoughts it makes sense. For one, economic downturns don’t last forever, so by the time things pick up the startup will hopefully be off the ground and be ready to reap in the rewards of the better times ahead. Also historically, new paradigms in technology have been introduced during downturns – think Web 2.0 and the 2001-2003 malaise. Melissa Chang at The Industry Standard lists 5 great reasons why recessions are a good time to start a company.

Naturally, making it so that your venture makes it through the rough times and lasts until the going gets better is crucial. This is where inflation can throw a big monkey wrench in your startup’s financial planning.

When a startup launches with a pool of funds, right off the gate the funds are good for, say X months. Then inflation roars along, forcing that estimate to go down to X-1, X-2 months, etc. And inflation has been roaring along: it recently inched to a 17-year high in the US, an all-time record in the EU and Canada, and emerging economies like China and India have been breaking records of their own (here and here).

So if you have an idea and some money set aside, either from saving or pledges from friends and relatives, launch that startup and launch it now. Don’t wait, because in a few months from now that amount of money may not get you as far as it would today.

The extent to which the current inflationary environment affects different startups can vary. Launching a software-based startup can be done on a shoestring these days with the relatively inexpensive cost of hosting, basic hardware and various startup support services (like SimpleDB, EC2) etc.

The relatively low “price of entry” for a software startup shouldn’t cause complacency to the threat of inflation though. Often times the largest expense category of startups, especially smaller ones and micro ISVs, is the cost of living of the founding members, some outsourced work here and there (e.g. graphic design) and maybe some travel (maybe a bit more travel if you are launching an enterprise software startup, actually). Unfortunately the expenses associated with these categories have been rising much faster than many other items that the official inflation figure tracks.

Don’t expect much of a break when it comes to hiring help either – tech workers are still in high demand, their salaries in emerging economies like India have been catching up as this story from Bangalore indicates and even reputedly not-so-great economies like Germany have now an official shortage of engineers.

There is little sign of inflationary pressures dissipating any time soon. If anything, they might only get worse. Inflation-stoking events are everywhere, from government-sponsored bailouts of bankrupt institutions (Northern Rock in the UK, Bear Stearns in the US) to economy ‘stimulus’ packages (e.g. the one in Spain), from Central Banks worldwide pumping ‘liquidity’ into markets and keeping interest rates below inflation rates.

For example, in the US the Federal Reserve rate is 2.00% or 2.25% through its discount window. These rates are available for select privileged institutions (i.e. not you and me). With inflation officially at 5% and unofficially much higher, these select privileged institutions that get access to this sweet deal are effectively being *paid* to take the money. And thus money is created out of nothing and down the inflationary spiral we go.

A surprisingly large number of developed and developing countries in the world have their Central Bank rates close to or below inflation, so the difference here is mostly about the *extent* of the creative ways in which new money is pumped into the system.

The official response on inflation so far has been mostly “yeah, it’s bad, we know it, we are just gonna look at it some more and hope it goes away on its own. Hey, how ’bout another multi-billion dollar bailout?”.

Now, I am not an economist and maybe this is the correct course of action given the circumstances. What I do know though is that things are unlikely to change in the upcoming few months while my startup ramps up, and I am planning accordingly.

Inflation is real, inflation is here and ignoring it can be detrimental to the health of your startup, present or future. Plan now, act now.

The Future of Enterprise Software: I Am So Scared, I Am So Excited

It is not very often that one gets to hear about events that can dramatically change an industry. And yet there it is, right in front of us in the form of a lawsuit filed by Waste Management against super-large software vendor SAP. The lawsuit allegedly exposes some of the ugliest and most dishonest practices in enterprise software sales and the court’s reaction to it has the potential to dramatically transform the industry as we know it.

Basically Waste Management spent $100mln on a system that it claims was of little use after delivery. But instead of just swallowing it like many other purchasers of ill-fated software products, they decided to sue. And sue big.

The court materials are actually a pretty interesting read. In it, Waste Management alleges that the software it bought from SAP was “utterly incapable of running the operations of an American waste and recycling company” despite SAP presenting it is “out-of-the-box,”, “integrated end-to-end solution”. Another quote from the court materials that I found intriguing:

As part of its fraud, SAP presented Waste Management with a series of pre-contract product demonstrations consisting of what SAP represented was the actual Waste and Recycling Software. Yet Waste Management has discovered – and, in internal documents, SAP has admitted – that the pre-contract demonstrations were in fact nothing more than fake, mock-up simulations that did not use the software ultimately licensed to Waste Management

The full text for the court filing can be found here. Now, I Am Not A Lawyer and am the last one to know which direction this lawsuit will go. Moreover, this is the story from Waste Management side only and I am sure SAP has something to say as well.

However, the implications of this lawsuit and the attention it drew can be profound and go much further than toxic publicity for SAP. Rest assured, the business community at large is taking note of these developments. If the courts rule in favour of Waste Management in any of the counts, the salesmen at your enterprise software company might be in for a completely different experience next time they try to make a sale. Maybe at the next product demo given to a customer, instead of just people from IT and the potential users there will be also a couple of people from the legal team in the audience. Oh, and the microphone is on ‘record’, by the way. And how much of this demo is fake anyways?

Whichever way you look at it, the implications for the reputation of the large software vendors are not positive. Popular articles like this don’t help either. And all this is happening while in a report by William Snyder from Gartner comes out basically saying that enterprise software licensing model is in for a radical change (original can be purchased from here, discussion of the report can be found here) .  One of his reasons? The existing sales and licensing models just won’t fly in the emerging markets.

It looks to me like the big enterprise software vendors may be headed for a period of soul searching over the next few years as their sales and licensing models become increasingly under scrutiny and more and more customers balk at the existing practices. The good ole days of fat profit margins may be coming to an end, a sentiment echoed by Snyder as well.

But in every crisis there is opportunity, and there are plenty of opportunities in this one. The opportunities are there for enterprise software companies that maintain good, healthy relationships with their clients and don’t turn their potential users into irate and vociferous litigators. And the opportunities are there for companies that invest the time and effort on building new products and technologies that innovatively solve customer’s problems instead of relying on sales prowess alone. Given the potential PR damage and legal costs from this highly public lawsuit, I wonder if SAP now wishes they had spent more R&D time and effort on designing and implementing software that better meets their customer’s expectations.

More so than ever, the time is coming for companies that build it right and do it right to prosper while the ones that exclusively focus on just selling it right and who-cares-what-happens-after-the-deal-closes to stare at a lacklustre or flat  revenue curve. Because you really can’t fool all the people all the time.