Deciding If Software Is Good
Michael Krigsman sticks it to Nick Carr and includes an interesting assertion: that how good software is can be decided by how much revenue it drives:
Nick, please let the market decide whether enterprise software is “good” or not. There’s a simple metric for measuring this: it’s called revenue. Just for kicks, compare the revenue of enterprise companies, such SAP or Oracle, to consumer-oriented firms such as Twitter (click to follow me).
Interesting point, but wrong. The amount of revenue software drives is determined by a number of factors (go ask an economist for the full list), some of the really key ones in the enterprise vs consumer questions include:
- The ability to pay of the target market. It doesn't matter how good the software is, if the customer only has $10 that's all they can pay for it.
- The size of the market it targets. Brilliant software for a niche market will generate less revenue that average software for a big market.
- The amount of and quality of competition. This is the really big point that Michael misses - if you are the only solution to a big problem for people who can afford to pay a lot, you will make money hand over fist almost regardless of how bad the software is.
A much better way of judging how good software is for a mature market, would be how much room there is for a new competitor. If someone can enter the market and solve the problem better than you they'll take away your customers and make money instead. Unfortunately, this is a particularly complex metric because you also have to factor in how rapidly the entire market is growing etc.
This of course leads us to the question, is the enterprise software arena ripe for an upstart with a far more sexy, usable product to come in and take a lot of market share? To a degree yes, but only if they can also solve the existing problems that are well served by enterprise software - support, scalability etc. All the things that the enterprise sales process currently focuses on.
December 14th, 2007 at 12:27 pm
I think you forget that unless your business makes money its a hobby. People are willing to pay IF the product is good enough, see ipod, iphone etc. If your product is good enough, and doesn’t just “solve problems” but “removes pain” then customers come running in droves.
You are right on one point: it should be sales/customer/disposable revenue of customer. That way it would correct for market size and the customers revenue and produce a measure comparable between industries
December 14th, 2007 at 12:38 pm
Oh and by the way, something like twitter doesn’t remove pain. Thats why people will never pay for it, and will MOVE to another competitor if they start charging. One day investors will get sick of dumping money into things that don’t actually produce a profit, and when that glorioous day comes people will realise the huge problems of web based services like it.
While google can turn a profit at the moment, imagine a distruptive technology that destroys their revenue stream. All it would take is a global uptake of adblock plus, and google is dead. Imagine what would happen if mozilla included ABP by default? They won’t of course (as this would kill their revenue stream) but it will happen one way or another (tivo, torrents anyone in another industry that relied on ads?), and everyone better have a plan B.
December 14th, 2007 at 12:50 pm
anon,
There’s a big difference between making money and making a heck of a lot of money. Great software in a niche market can be profitable - usually because it has very low costs associated with it. However it won’t compare to the amount of money great software in a big, rich market could make which is why revenue is such a poor way to compare software. To that extent, it makes no difference if the software is made as a business or a hobby or open source - it can still be great. The bottom line is that there isn’t a good way to define quality, but sales is a particularly lousy way to define it.
It’s worth noting that twitter solves a problem - communication. It solves it in a unique way with debateable effectiveness, but it does solve a problem, however it probably isn’t worth enough to it’s users for them to pay for it. Advertising could be a way to monitize that stream though (solving the problem advertisers have of getting their message out which they’re willing to pay a lot for).
I doubt ad blocking software will ever be able to kill Google’s revenue stream - it’s too easy for them to adjust the way their ads are served so that it doesn’t block it again.
December 14th, 2007 at 11:57 pm
You are of course spot on and correct, Adrian. Saying that software is good because it’s profitable is like saying just about everything Microsoft will ever include in their operating system will be good, because the operating system is profitable. The same goes for their Office suite. Are there any disagreements on whether Apple Keynote is better than Microsoft PowerPoint? Is PowerPoint really better than Keynote just because it’s more profitable? I think not. Is Microsoft Windows Vista better than OS X because it’s more profitable? How about Ubuntu Linux? I think not.
Good software is not measured by price or profitability. Perhaps it is for the shareholders of the company developing the software, but not for anyone else. Why software is profitable and why software is good are two completely orthogonal issues. Sometimes they go hand in hand, sometimes they don’t.
December 26th, 2007 at 9:31 am
On the point about revenue being an indicator of what the market wants/expects: we’re specifically talking about enterprise software here, not software for small non-profits, for example. The market is large, and customers will pay for mission-critical software that does the job. If revenue doesn’t serve as proxy for market interest and acceptance in this case, what measure could possibly work?
Michael Krigsman
ZDNet Blog: http://blogs.zdnet.com
Twitter: http://twitter.com/mkrigsman