Judith Hurwitz Q&A: Software Vendors in a Strange New World
New technologies and business models -- whether cloud computing or Intel's Nahalem, which seems positioned to become the first broadly popular 64-bit system -- can have enormous impact on the software industry. We spoke with Judith Hurwitz, CEO of Hurwitz & Associates and noted software market expert.
BNET: With cloud computing, the potential for popular 64-bit machines, SaaS, and the increasingly difficulty of the continuous upgrade game, what affects are software vendors feeling? Judith Hurwitz: I think we are definitely at a turning point with the software market. Companies basically have to be part of a partner ecosystem to survive. It's a complicated question, because all software is not the same, all vendors is not the same. A lot of it depends on whether the software vendors go ahead and write their applications to take advantage of it. That's always been the problem. It offers benefits and opportunities, but only if you choose to do something productive with it. Clearly with a lot of the new technology, whether you want to look from a cloud perspective or highly scalable perspective across a broad ecosystem, that is powerful.
BNET: What are some of the problems? JH: It is challenging for software vendors from licensing issues. If I'm using an application I the cloud and I'm collaborating using that application across four partners, how many licensees do I need? How much are licenses? Where's the value in maintenance? There's been turmoil in terms of what gets licensed. Companies that use virtualization get confused about how many licenses I need. How often do I use these applications? If you apply different business metrics, which you're doing with some of these new technologies, models change, and it puts pressure on vendors to figure out new business models, which is hard.
BNET: Are there any areas, like graphics and video editing, which can use the larger amount of addressable space, where the vendors seem more tuned in to 64-bit? JH: For specialty markets like that, the software vendors will take advantage, because it will allow them to differentiate themselves.
BNET: They have to keep up. JH: People don't keep up just because it's fun. They do because if they don't, someon'e soing to eat their lunch.
BNET: Will there also be problems with users, particularly consumers, who move to the new machine and wonder why they might have to pay again for a 64-bit license? JH: Isn't that the same as I have my trusty application that works just fine on Windows 3.1 and now I've moved to Vista. I've been living in a cave. The application doesn't work any longer because it's new generation. I have to buy a new copy. That's been going on forever.
BNET: But 32-bit and 64-bit Windows 7 won't look any different. So there's that psychological factor of feeling that they're still on the same operating system. Do the vendors have to manage user resentment? JH: That's nothing new. You only have to look at some of the issues customers have with Oracle license. I don't' think it's uncharted territory. There are always issues with new operating system levels. This is the way the world of software works. And it is a world that tends to move very slowly. Old software never dies.
BNET: Are there increased risks and maybe a place for an upgrade strategy? If you're in a software niche that can use the 64-bit power, then a competitor might use the change as a way to get past that tough barrier of someone already having purchased a software package. JH: Sure, but again that's marketing. I know my customers well. They have no trouble with upgrades. If you say buy this new product and they say wait a minute, I don't buy new products? It's all knowing your customers and what works for them.
BNET: What are some of the considerations with cloud computing?
JH: You're getting what is typical for an emerging market. You're getting very big players positioning themselves who really want to own the cloud ecosystem. They don't necessarily want to invent all of the technology themselves, but they'll look at the leaders in clouds and then align themselves, hoping to become arms merchants to people providing first generation cloud services. It's the alignment of the big guys, plus a whole plethora of software companies that will do management of clouds. They'll take bits and pieces of it, subsets of capabilities that maybe are not widely available. You've got the traditional software service vendors who got in there early, created their own clouds, and what they've been trying to do over the past four to five years is position themselves as the center of the ecosystem. I think they're being challenged by some of these vendors who want to own the APIs and own the stack. I think there will be some ugliness around companies that make cardboard companies but say they're a cloud company. I think that's a big danger for companies. If you're going to position yourself for a hot market play, make sure you can really deliver and that you're not putting yourself into a position where people see you as one of a thousand.
BNET: Where are software companies typically getting themselves into trouble? JH: What I find that the companies that position themselves as providing a tool always get into trouble. The problem is that a tool buyer generally views the tool as being a commodity. I should be able to buy it for $14.99. I've had companies talk to me and say we have an algorithm, how much is an algorithm worth? I think there are a lot of problems with packaging software. How do you package it so it looks like a solution that solves a major customer problem? If you're just adding a tweak, it's just not going to work. You may have a company that has found the white space in a certain market but this problem cannot be solved, or each time they do it requires six people a month and a half to do it and I have to pay each person $100 an hour. If you as a software company say, "I have a technology that takes all of the complex work out of the equation, I'm going to help you automate that," then you're providing real value in the marketplace. [Listening to what customers say] can be good, but they may be asking you things because they have an immediate problem, but for a future strategy, they may be going somewhere else, so you do everything they ask you to do and they still say sayonara. Or some [vendors] get into transaction mode [to just sell more units] rather than using a down market to look at some innovative ways to transform myself.
Some price their products in ways that aren't smart, or they price products in a way that they don't do in terms of value selling. If there's a product that provides incredible value from customers and you're selling it for $149, how can you expect to get big? I'll see companies that have really nice technology that nobody else has but they're a small company. I'll say why aren't you bigger? They price too low, they price in modules so people can buy in chunks. They get arrogant because they're a tiny little company but they want to pretend to be the industry leader and claim to do everything. But customers are frightened to turn everything over to a vendor that does $4 million in revenue.
Photo courtesy Hurwitz & Associates.