Getting over 'the software business'

The software business ain't what it once was. For starters, it's not really about software anymore.

Here's some comfort for the software industry, innocently offered up as advice to the media industry in an excellent Andrew Savikas post. Savikas challenges media companies to think beyond media-as-product to think of a media-as-service, just as restaurants look beyond "food" to sell "meals" and a complete dining experience.

It's a great idea. It's just too bad that 90 percent of restaurants fail within their first few years of existence. Media companies apparently have the choice of failure or...failure.

Software companies, which also have the problem (and opportunity) of easily replicable goods, are in the same boat. The good news is that the software industry, more than the media industry, has recognized for years that it's in the services business, even if it sticks to the "software" nomenclature. Open source, Software-as-a-Service (SaaS), and Web companies like Google are all indications that software has moved beyond peddling bits, even if we like to pretend that we haven't.

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Don't believe me? Just look at Oracle. Almost half of its business now stems from maintenance revenue, which is effectively services revenue disguised as license revenue. Oracle had an open-source subscription model before it became cool.

Who is to blame for this? Thieving teenagers downloading music? Rapacious enterprises taking open source without giving anything back ?

I don't know, and it doesn't matter. It may be that wrong-headed business models are the cause of piracy, as European Union telecommunications chief Viviane Reading suggests, or it might be that people are simply amoral. It doesn't matter. Savikas is right to point out that it's not the consumer's job to figure out the right business model for media companies (or software vendors):

You don't get an "A" for effort just by spending time and money creating content (and you are not entitled to your business model--you have to earn that money every day by doing something that people find worth paying for--and they decide it's worth paying for, not you). Content only has value to the extent that someone will pay for it because it accomplishes something they'd rather exchange money for than do themselves--and when was the last time you said "Gee, I really need some content. I could write some of it for myself to read today, but I'd rather pay someone else to do it."

Google and other aggregators haven't stolen any value from the creators of the content they are aggregating--they have done what intermediaries have always done, which is create new value based on doing for customers what those customers cannot or do not want to do themselves--the service of sorting through all that content to find the thing that solves their problem.

This is happening in software, too. Red Hat is an intermediary for a growing array of open-source infrastructure projects. As mentioned, Oracle is already in the practice of buying up maintenance revenues from competitive and complementary products.

That's where software is going: services. The key as you start up your next software vendor is to stop fixating on software and think beyond it to the services--delivered as support, proprietary add-ons, or whatever--that will make you money. If you're in the software business, you're almost certainly in the wrong business.


Follow me on Twitter @mjasay.

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About the author

    Matt Asay is chief operating officer at Canonical, the company behind the Ubuntu Linux operating system. Prior to Canonical, Matt was general manager of the Americas division and vice president of business development at Alfresco, an open-source applications company. Matt brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. He is a member of the CNET Blog Network and is not an employee of CNET. You can follow Matt on Twitter @mjasay.

     

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