The Business Of Software

Yep, it is possible to position a product as The Number Two.

Avis does it well with their "We're number two - we try harder" (than Hertz).  We all know that Pepsi is the #2 cola, even though "Nothing Else Is A Pepsi". Similarly, a software company could also succeed in a market led by someone else.

For some reasons, all Indipendent Software Vendors (ISV's) Press Releases, start out with "XYZ Corporation, the leading provider of ...". Well, being each market populated of ten (major) players in average, and being only one Number One by definition, then the 90% of ISV's build a gap between the position they want and the position they have. 

Nothing personal, friends.

Ecological economics says that the level of competition is directly proportional to market size. Surprisingly, software market isn’t (completely) efficient, and some niches are more profitable than others. Therefore, though making a competitive analysis before writing the first line of code is crucial, don’t struggle more than one day on this task. If you don't find a competitor within hours, very likely neither will you manage to find customers.

Anyone can be tempted by entering a market with an intense competition, having features that other software haven't. “Being the size of the market $100 million dollars/year, we can -being conservative- easily get 1% of the market, that’s $1 million/year”. Not conservative enough, I think. Top players have marketing budgets matching their size, and your business will be hardly profitable. 

No competition is a bad sign as well. Though there is a chance that you are a genius, it is more likely that there are no competitors because there is no market. Others may have tried and failed.

I hear people using either "Code" or "Software" as if they were synonyms.

I notice Software Companies Sales-engineers using "code" quite often -when presenting the software in public events or at the customer site, while the Sales-non-engineers use "software", always.

The distinction between Code&Software is subtle. Programmers write code, the list of programming language declarations aimed at giving instructions to computers. Software actually is the end product: it is what the user perceives, experiences.

When demonstrating  the software to the client, the difference can be significant. It is definitely Software what our customers buy.

We who develop software, are often told that we should build software that delights customers. The question is: "Who is our customer?"  

In our Interlocked-Lego world, identifying the customer is not straightforward. It is not the engineer who uses your software, nor the CAE or IT manager who buys it. There's a whole team behind every customer. Users,  Buyer and Influencers are linked-In, ruling other buyers. We have to do more than understanding them; we need to engage with them alone and in group, understanding how they want to be engaged.

Peter Drucker advised us to ask:

• Who should be included in our customer definition
  
• Who, in the world of tech-alliances should we view as customers and who as competitors
• Who is not our customer
  
• Which of our current -non customers- should we do business with
  

While I'm forced to think about far more than the end users, as important as they are, I think my primary customer is the sales-rep. The sales channel has to buy benefits from software features and get the differences between software configurations.

Sometimes I meet managers from Software Company Headquarters treating the distribution channel people with a hint of disdain. On my way managing a hybrid channel of resellers, I'm learning who I need to sell the software first.

Niche markets are the place to thrive in software. Specific market segments are too small for the big players to invest in. Top players like Dassault Systemes, Siemens PLM and Autodesk find not feasible pursuing small segments, as they pursue their shareholders two-digit growth rates expectations. When they evaluate a new technology, they filter companies with less than 10M USD annual revenues. It is not worth the time.

Excluding the Big Five (Dassault, Ansys, MSC, Siemens PLM and LMS), the average Computer Aided Engineering company size is 5M USD. Big players would not consider pursuing such small markets before they eventually grow up to 10M USD, therefore niche software have limited competitive pressure, ie. bigger profits and growth.

Seth points out here: “In Movie-Stars market place, the (number of people resembling George Clooney)/(jobs for people resembling George Clooney) is bigger than the ratio available to Danny DeVito. Because everyone in Hollywood is trying to be George, there are a lot more opportunities for the few Dannys willing to show up.”

Invest in Danny-niche software companies.

Few Computer Aided Engineering methods are more visual than the Discrete Elements (DEM). DEM are numerical methods good for computing the motion of a large number of small objects (like molecules, grains of sand or pills). Without hassling with long pre-processing, clean-up and mesh. DEM methods require only boundaries shape and particles properties to calculate particles dynamics.

The market leader is a 5-10M€ software company based in Edimbourg-UK: DEM Solutions. This morning Chris Reily -VP Sales told me they re-wrote from scratch the code before releasing the new EDEM 2.0. John Favier, former CEO of DEM Solutions posted on YouTube some nice movies, showing some the sexiest software applications.

Surprisingly, few Engineering software companies movie their jewels in the act of generating value for the customer. Estabilished (and old) corp-websites are still blossomed with still images and pdf's.

Might you think it's marginal? Look at this application of Realflow software. Do you still find Media & Entertainment miles away from Computer Aided Engineering?

Like many software companies we like to invite University fans to our free software trainings. We had a good one in Dublin yesterday, though we were having almost no registrations 'til two weeks ago.

Here's the tale:

Anticipated, personal and relevant. Shouldn't anything (including e-mail) be like that? Thanks to Cristina for pointing it out.

This morning Engineous software, developer of I-sight, the process integration and design optimization (PIDO) software has been acquired by Dassault Systemes for 40M$. Engineous and its I-sight software is leading its market, according to market data available.  

Many of us were expecting this -Engineous software was leaving snail trails on the market, recently. Last year they tied-up with MSC-Software for a while, splitting up after few months. More recently, they were striving a sales-partnership with IBM; then it was far too easy to bet on the next move.

Engineous is more a competitor of mine than not. While writing this post, I'm messaging with my business partner in UK. "In the interim we should be ok, Abaqus haven't bore fruit as Simulia (Dassault Systemes). LMS software will be unhappy that they didn't buy Optimus software (competitor of I-sight) given they are a Dassault Systemes gold partner already".

Savvy; in the interim.

By the way, PIDO technologies are growing faster than any other PLM solution.  

Seth Godin set a list of 36 things we should consider before emailing a customer or a colleague. Software companies are great users and abusers of email. Here is an adapted list from the original one, along with some bonuses: