Over the last two posts to this blog we have discussed what was a familiar model for smaller Independent Software Vendors (ISVs), namely software product development which was entirely focused on satisfying the needs of niche markets. In fact, these smaller ISVs, or Value Added Resellers (VARs) as they were referred to in the past, could develop into attractive businesses with a lucrative revenue model, all built around highly specialized markets. In fact these market niches almost always included formidable barriers to entry that would discourage likely competitors.
In the last post we provided a brief example of a VAR that grew into a successful business employing 4-5 developers. This VAR sold a complete Enterprise Resource Planning (ERP) automated system specifically designed for the conference market for non profit organizations. There are, literally, thousands (or, perhaps, even millions) of examples of other highly specific software products built by VARs, or smaller ISVs for very specific markets.
However, it does not make sense for these same smaller ISVs to pursue product development for niche markets if the business plan is built around providing software development services to customers. This services business model has been very popular since 2000. The model works as follows: we have a small team of software developers, and Subject Matter Experts (SMEs), for a specific type of software development; for example, application development with PHP, C#, Java, etc. Our revenue model is built on leasing out these experts to customers who may use our team to build their own custom software products. Of course, the custom software products developed by our SMEs remain the property of our customers. Once the project is finished, our team (ideally) proceeds to a new project.
In fact this services business model for smaller ISVs is no longer the revenue generator that it once was. We have written a lot on this topic already; therefore, we are not going to expand on the point here. Let it suffice to say that via a combination of a more global market for SMEs, a push by enterprise ISVs and enterprise customers for Software as a Service (SaaS), and the cool markets for software that characterized the last several years during a global economic slow down, an ISV simply marketing the services of a team of SMEs is not a very promising strategy.
Rather, we think that smaller ISVs need to come back to thinking about product development. Satisfying the needs of niche markets is certainly a good place to start. In the next post to this blog we will look at opportunities for lower cost product development as the result of SaaS resources like Amazon AWS, etc.
© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved