Business & Technology Nexus

Dave Stephens on technology and business trends

Commoditization & “High” Technology

with one comment

Is any software company out there truly deserving of being called “high” tech any more? What happens etymologically when upstart high tech companies compete over the span of decades & commoditize space after space after space. At some point shouldn’t we stop associating them with the “high” part of high-tech? And when do software firms in those spaces sink down low enough to be called “low” tech? (If you’re thinking CA, you’re not alone) :)

Wordplay aside, doesn’t it seem like the price of many types of software technology is headed towards zero?

A friend of mine in the venture community argues yes. He summarized his view this way: “It’s really hard to build new software technology and then convince people to ascribe value to it. These days, it’s better to instead use software technology to sell people things they already ascribe value to.”

I’ve been wondering whether there is data to support his point of view. In fact, the first few paragraphs of this post have just been sitting in WordPress while I looked around.

Just today I stumbled across an analysis of SuccessFactors that was worth a quick look. Here is a link to the article, entitled: Success Factors: Going for Break-Even Rather than Revenue Growth?

The assertion the author makes is “Increasingly, it looks like SAAS providers will have a tougher and long winding road to sustainable profits and continuous top-line growth.” I hope it will turn out that newer enterprise software vendors will find a path to profitability through reducing the cost of customer acquisition. But the days of being able to claim “it’s a land grab, take share now & profits later” seem to be drawing to a close in this particular software technology space.

Because the cost of developing software is racing to zero every bit as fast as some markets commoditize, it does seem possible to find nooks and crannies of high margin businesses. But these businesses, it would seem, will be more and more specialized & therefore the prospective markets will likewise be smaller.

There does seem to be another path to profitability besides the choice to serve niche markets: outsourced services.

More on that later.

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Written by Dave Stephens

10/29/09 8:14 PM at 8:14 pm

Posted in Opinion

One Response

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  1. I agree with your friend ..though I don’t have stats to prove…. ““It’s really hard to build new software technology and then convince people to ascribe value to it. These days, it’s better to instead use software technology to sell people things they already ascribe value to.”

    Some analysts expects enterprise software-as-a-service revenue (SaaS) to more than double by 2012.

    There has been a 27 percent increase in SaaS revenue this year, up to $6.4 billion. The popularity of the on-demand deployment model has increased significantly within the last four years. Initial concerns over security, response time, and service availability have diminished for many organizations as SaaS business and computing models have matured and adoption has become pervasive.

    — Sada Siva Rao

    kannega

    07/22/10 10:06 PM at 10:06 pm


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