Enterprise IT ISVs must Plan on Constant Market Price Pressure as an Important Factor on Recurring Revenue Product Models

Professor Willy C. Shih, in an interview aired on November 29, 2012 on Bloomberg TV Surveillance faults Kodak (and other manufacturers of modern cameras) for, effectively, ceding control over manufacturing of the durable component of their camera system products over to foreign businesses. The durable component of the modern photography system is the camera. We entirely agree with Professor Shih’s judgement; however, we are particularly interested in the changes that manifested in marketplace interest in the non durable component of the system, meaning film, and, later, digital recording methods which entirely supplanted its predecessor as the preferred and widely popular method of recording and re-using photos.

We think the history of how this radical shift in market interest occurred is completely consistent with products that become commodities, over time. We also think that Kodak, itself, contributed to this transformation of the home photography market from something unique to merely a necessity for mass market customers in need of a commodity to record family events (like births, weddings, funerals, etc) for posterity in a visual form.

Kodak contributed to this destructive trend by producing film that would work in any camera, regardless of the manufacturer. When consumers could capture the same comparable quality image of an event through any available method, the market need swung all the way over to two telltale factors:

  • price
  • and availability

Of course, the absolute lowest cost photo system, as well as the fastest method of producing photos, are both to be found in digital cameras, and, further in the digital cameras included in mobile telephones (cameras were originally added to the feature set of cell phones as a spurious after thought to push consumer interest).

There are some disturbing parallels of Kodak’s unfortunate experience and the approaches of first IBM, and then Microsoft’s approach to the enterprise IT computing markets. With regards to the personal computer segment of the enterprise IT market, in our opinion, both IBM and, later, Microsoft opted to decouple hardware from operating system. By licensing their computing platform to multiple OEMs, both IBM and Microsoft inadvertently created the basis of a market entirely driven by a quest for computing solutions as commodities. To reiterate: when the computing experience is entirely uniform, despite the type of computer (durable component) used to convey the application (non durable component) to the user for processing, then the only important factors quickly become price and availability, which are two billboards pointing to a commodity market.

If enterprise IT ISVs choose to compete in these commodity driven markets, then they must be constantly on the lookout for lower cost methods of producing items, as well as the quickest delivery times. In the next post to this blog we will look a bit closer at whether or not there is an important opportunity in the Citizen Developer segment of the enterprise IT computing market for ISVs offering no code application development solutions.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved

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