The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad

Author - Michael A. Cusumano ... [Goo?] [Posters]

This Hardcover Book item from Free Press was reviewed on 26-Oct-2008.

Search ISBN:074321580X offer from Abebooks or used books from Alibris. The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad Reference Book. Classifications : High-Tech Industries & Professions Business & Investing Subjects Books MIS Industries & Professions Business & Investing Subjects Books Systems & Planning Management & Leadership Business & Investing . Click the following link to view the cover of The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad.

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1) Hardcover Book The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad by Free Press. This book offers some good perspectives on software companies, but I was shocked and disappointed with a glaring omission - software as a service (SaaS). This book points out that one of the critical decisions of a software company is between a product company (that sells a product) and a services company (one that provides consulting and/or custom development work). Product companies are generally more profitable (in good times) because they have lower marginal costs. Service companies are more steady, and thus easier to keep profitable in difficult times. It would appear that SaaS has the best of both worlds and the worst of neither. The "Best Practices" chapter is fairly weak, failing to identify agile development, and capturing only the continuous integration aspect and calling it "sync and stabilize". I realize the book was written in 2003, but the agile Manifesto was signed in 2001, and there were already many companies selling SaaS by 2002.
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2) Hardcover Book The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad by Free Press. I2 in 1996 went from $20 a share to $111 a share in 2000 and then to 41 cents in 2002. "Writing off the value of acquisitions that never lived up to their promises caused I2 to lose nearly $8 billion in 2001. Revenues in 2002 showed that I2 never really had a billion dollar business. In 2001, according to the restated financial information it cost I2 about $1.32 for every dollar of revenue. Including all operating charges and expenses, in 2001 it cost I2 $9 for every dollar in sales. In 2001-2002, I2 sold more "service-like" items (maintenance, product enhancements and upgrades, and customized contracted software). Service being the slow impoverishing factor. Between 1999 and 2002, $950 million in software license fees required the company "to perform services that are essential to the functionality of our product." I2 products were complex hybrids requiring time and expertise to install, tailor, and integrate into customer´s information systems. The software was difficult to sale in high volumes. Once installed, Customers claimed to realize major cost savings and large returns on their I2 investment. A large part of I2 technical organization was located in India, where costs were lower. CEO, Sidu said, "After growing 97 percent in 2000, total revenues fell 12 percent to $986 million, and in the second quarter, I2 reported its first quarterly pro forma loss." I2 need a wider group of satisfied and loyal customers; Sidu classic MBA style management solution shifted away from establishing a horizontal product platform with established short term and long term contracts, towards cost cutting measures, he says, "As customers slowed spending, we reduced our quarterly cost structure by more than $100 million from the first to the fourth quarters. We reorganized our operations, reduced our workforce, refocused sales forces, consolidated offices, reduced discretionary expenditures and began transitioning more research and development to India, where we have a 3:1 cost advantage over developing in the US." Large profits result from the manufacturing of products and then follow with service contracts. However, when times become bad, revenues collapse and customer stop buying new products. The companies most likely to survive are those with a loyal and satisfied set of customers who pay recurring fees over long-term contracts for product updates, bug fixes, customization, and other services. If product sales do not resume then the service and fees will not be enough to save the company. "What I now realize, all too painfully, is that this potential failure to buy puts the revenues of software products companies as considerable risk" - short term for 3-5 years. Services revenues during the I2 boom grew faster than the product sale revenues. "Software companies can double or triple their revenues over time through accumulation of contracts for services and custom software, including maintenance, even if new software product sales lag behind in growth." "Over the lifetime of many enterprise software products, 70 percent or more of the total cost to a customer comes from service and maintenance fees and only 30 percent from the original product sale." The product verses service tension occurs because "they know they must eventually move toward selling more labor intensive and less profitable service." "It is also possible for software product companies to gravitate too much toward services and ruin the potential of their product business." Many times customization is required to get customers; the service portion of these revenues rise; installations and upgrades become more complex because they have to include the enhancements. It takes to time to establish a standardized product.

Business Object grew consistently with steady profits from 2001-2002. Business Object was simpler to install and customize. Between 1993 and 2002, Business Objects went from 18 percent services and maintenance to 46 percent; Oracle went from 40 to 64 percent; Siebel went from 5 to 57 percent; SAP went from 50 to 69 (1997-2002); IBM went from 58 percent to 74. The ERP companies understand the need to tailor products to customer or go out of business. As a result ERP companies are generally more oriented towards service and hybrid solutions than products. SAP revenues in 1997-2002 rose from $2.7 billion to $6.9 billion and employee increased from 11,558 to 28,604; SAP grew rapidly by hiring rapidly; so the company is not an exception and the trend can not continue forever.

A company starts out in a vertical market, gain market share, and then slowly expands into a horizontal market. Small companies usually do not have the resource required to build a product that can compete effectively in a horizontal market capturing larger and larger percentages of market share. The author states concerning his experience with high technology companies, "During these years, I believed and I think most venture capitalist, managers, and entrepreneurs also believed, that it was much better to be mainly a products company. I no longer think this is true." Software companies should want to sell a lot of copies of product. Companies that get heavily into customizing their products for each customer and "providing services such as strategy advice, training, and integration work with other software systems, as well as selling large amounts of maintenance and technical support have become a service company. Service companies are labor intensive organizations with lots of unique projects. Companies like "PricewaterhouseCoopers, EDS, Accenture, and Cap Gemini Ernst & Young are IT service firms". Microsoft or adobe are pure product companies.

Basic Financial Metrics: 1. Industrial analyst place a high value on the percentage of a software company´s revenues that com straight from licensing fees and the growth rate of this percentage over time (growth and stable sales). 2. Another measurement is sales productivity, or revenue per employee - 200k per year per employee for a company to be profitable. Companies can have high sales productivity and still lose by overspending in R&D, marketing, and administration. Sales and Marketing 25-30 percent of total revenues, R&D 10-15 percent, general administration 5 percent, and profit margin 20 to 30 percent. "Again, high revenues and profits per employee - and low costs relative to revenues-are much easier to achieve if you have a best-selling shrink-wrapped software product." Firms cannot charge too much for services. There are many India companies that can do the work for less or the company may decide to do the customization. "Software vendors that do mainly custom development or service work can also make lots of money, but only as long as they hire lots of people." "A products company should have well over half of its revenues coming from new sales of software products."

The difference in gross profit margin between selling licenses verses service is amazing; Business Objects, in 2002 sold $244 million in licenses with $3 million attributable to costs for a 99 percent profit margin; Business Object service revenue of $211 million consumed $71 million in costs, for a profit margin of 61 percent. Business Objects had R&D costs of $75 million or 16.5 percent of sales; in 2002, Business Objects had sales and marketing expense of $222 million or 49 percent of revenues). "Software products are generally much more profitable than services and maintenance revenues, and easier to growth without adding head count."

Horizontal Market case study of Skyfire: Started with three people, received $4 million in venture capital, and top off at 25 employees before exhausting. Skyfire platform allowed developers to port PC applications or develop them for wireless handheld devices. The company tried to go for a horizontal market, immediately; trying to get Microsoft, Nokia, Palm to embed Skyfire technology into their operating systems or server software building wireless applications that ran lean. "Imagine that you could securely and wirelessly connect from your PDA, laptop, or home PC to all the applications and data that reside in your office". "Good enough" prevailed; Microsoft had backoffice and dot net framework to sell; Palm had Code Warrior, and Nokia had its own technology. Skyfire thought they had a competitive advantage, saying "Our technology includes unique compression, encryption and transmission techniques, and device software that automatically enables any wireless device to perform like a computer terminal connected to the network." "The horizontal market could have been a bonanza for the company, but it provided impossible to crack." Vertical markets would have been easier to conquer. Every software company should periodically reevaluate its products to determine if it is getting the breadth of offerings right. The danger is bundling weak products with strong ones and not improving them. "Horizontal markets can require enormous investment and skill to master." "Once a company has crossed the chasm into the Early Majority with at least a niche product, it can be used as base to expand into other segments." Look for related segments to leverage the technology expansion. Increasing sales force during the Early adopters is not preferred, because early adopters are not a strong reference source. The tipping point is 10 percent market acceptance.
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3) Hardcover Book The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad by Free Press. Cusumano shows us what we, IT professionals, should know about business of software. He also shows us, in a very simple manner, what we must really know about software and its value chain.¤

4) Hardcover Book The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad by Free Press. This book is like a text book. Excellent source of information. Too much emphasis on Microsoft but when this book was written, Microsoft was at the top of their field.¤

5) Hardcover Book The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad by Free Press. Well written, detailed, and insightful, best describe this book. Very helpful for any ISV or software product development manager. Cusamano, having served many of the companies he chronicles in this book, provides a uniquely human "insiders look" into the heart of these monolithic software titans. His insight and clear understanding of trends and business models in the often obscured and esoteric space of enterprise software is incredibly helpful to any "little guy" eager to learn how the "big guys" do it.¤

6) Hardcover Book The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad by Free Press. The world´s leading expert on the global software industry and coauthor of the bestseller Microsoft Secrets reveals the inner workings of software giants like IBM, Microsoft, and Netscape and shows what it takes to create, develop, and manage a successful company -- in good times and bad -- in the most fiercely competitive business in the world.

In the $600 billion software industry it is the business, not the technology, that determines success or failure. This fact -- one that thousands of once glamorous start-ups have unhappily discovered for themselves -- is the well-documented conclusion of this enormously readable and revealing new book by Michael Cusumano, based on nearly twenty years of research and consulting with software producers around the world.

Cusumano builds on dozens of personal experiences and case studies to show how issues of strategy and organization are irrevocably linked with those of managing the technology and demonstrates that a thorough understanding of these issues is vital to success. At the heart of the book Cusumano poses seven questions that underpin a three-pronged management framework. He argues that companies must adopt one of three basic business models: become a products company at one end of the strategic spectrum, a services company at the other end, or a hybrid solutions company in between. The author describes the characteristics of the different models, evaluates their strengths and weaknesses, and shows how each is more or less appropriate for different stages in the evolution of a business as well as in good versus bad economic times. Readers will also find invaluable Cusumano´s treatment of software development issues ranging from architecture and teams to project management and testing, as well as two chapters devoted to what it takes to create a successful software start-up. Highlights include eight fundamental guidelines for evaluating potential software winners and Cusumano´s probing analysis, based on firsthand knowledge, of ten start-ups that have met with varying degrees of success.

The Business of Software is timely essential reading for managers, programmers, entrepreneurs, and others who follow the global software industry.¤

Page Updated: Robert N. Goolsby, 23-Nov-2008, 074321580X9780743215800, 0X0-330-050-131-341-411-8

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