Software start-ups feel the pinch

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The price of innovation.

As turning an idea into a profitable business becomes more and more difficult, a good alternative is to sell the idea to a large company, then use the proceeds to develop another idea.

Fortunately, patents assure that the large company can't confiscate the idea.

Unfortunately, people in a business whose long-term survival looks bleak can turn to destructive expedients. Remember Mr. DeLorean and what happened when his car company was going broke?

Other destructive expedients are legal.

Surrendering a valuable product to open source, for example, eliminates the value of a product while limiting the market to companies willing to take a chance. These are usually the companies confident in their ability to do without services.
(I disagree with the comment ascribed to Mr. Galimi in the article that losing excluse ownership of an idea makes the idea more attractive for purchase.)

The head of JBoss was quoted as enjoying the idea that sales are possible with limited overhead, but there's a reason that the overhead must be low.

Quoting:
... the low acquisition-price of open-source products means that software companies cannot support high-cost sales and marketing employees. Instead of hiring a large cadre of salespeople, some software companies say they rely on developer interest and telesales.

So, interest comes from having the product in use, and use requires interest. No wonder the market is said to be brutal.

I think that JBoss is thriving as an open source consultant operation. (That's different from the service of making a specific software product work.)
At some point, the company might gain from passing along the software and becoming a consultant only.


So the software market is well along in the process of becoming a few large companies so dominant that competiton is impossible, except at the precarious margins.

This has the advantage that an idea implemented by any one of those companies will go into wide use more quickly than if a small company had to accumulate sales one buyer at a time.

And it has the advantage that survivor companies will be able to regularize their income:

Corporate customers are buying from fewer, larger providers and choosing different purchasing models, notably annual subscriptions in place of upfront fees.

A small company would have difficulty with small payments over a period of time. But the subscription model in which upgrades are purchased in advance means a satisfactory regularity and reliability of income and product for all.

In short, the Microsoft model is becoming triumphant over the entire industry. And in that environment, which company will be best able to thrive? Why, the originator, of course.

Posted by: Anton Philidor   Posted on: 01/12/06 You are currently: a Guest | Members login | Terms of Use

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