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February 2014

Successful Desktop Developers Failing to Make the Transition to Cloud and Mobile – Part 2 of 3: Starting Over

You need to understand what the business model is before investing what can be hundreds of thousands of dollars creating these new cloud and mobile solutions.  Right?  Of Course!

Nope.  No.

You need to go back to the beginning – when you started your business and you weren’t even sure your software had real value and if people would pay for it.  Never mind how much they would pay for it.

Autodesk originally sold AutoCAD for $1000 and quickly determined the price was too low – and a lot of money was being left on the table.  Then AutoCAD was sold in 3 different variations - $1000, $2000 and $3000.  It took Autodesk 6 years to determine the optimum offering was a single product at $3000 per copy.  Do you recall when AutoCAD was sold in its largest market at the time – the United States – with no license protection?  Today that sounds crazy – but at the time it was a competitive advantage that laid a foundation for AutoCAD becoming the drafting standard around the world.  Applying the prior generations of pre PC technologies licensing approaches to the new PC world was a mistake – a mistake more than a few established companies making the transition to PCs made.  One needs to recognize the new Cloud and Mobile paradigm is different – many of our business “reflexes” built up over the last 20 years with desktop software are likely “wrong”.

So what to do?  How does one build a new business leveraging Cloud and Mobile?

We are surrounded by successful examples in the Business to Consumer world.  Google was in business for a few years before trying to make any revenue.  It was several years before it became clear their business model was all about advertising – tapping into marketing budgets.  They had no idea they were going to make money by selling advertising for the first few years – never mind how much money they should sell advertising for.  And you know, Google sell’s advertising differently - primarily through on-line auctions – completely different then how advertising was sold in the past.  Imagine their competitors in the early day when the advertising firms didn’t know a search engine could become a competitor for advertiser dollars.  Never mind they totally differently advertising sales paradigm. New chapter

It was only a few years ago that Facebook got their business model figured out – and only the last year that they proved one can make large amounts of money with mobile device based advertising.  And Twitter is just now figuring out their business model – several years after launching their business.

The point I am making is one cannot just create a business model as an intellectual exercise to prove you should invest in new business area.  You need to step back to when you first started your business and didn’t know if, when and how customers would pay you money for your software.  You built it, and were pleasantly surprised to learn people would pay for it – and then sorted out what the value is and what you could charge people for your software.

It’s time to do that again.

Successful Desktop Developers Failing to Make the Transition to Cloud and Mobile – Part 1 of 3: The Problem

You can skip these next few postings if you are under 40 years old…  :-)

In the beginning, a long time ago, when the business was new – and the desktop with perpetual licenses was the only way – developing a software business was straight forward.  The hardest thing to do was setting the “per copy” price – and maybe considering site and company-wide licenses.  If you got the pricing wrong, it was easy enough to change it.  Within a year of starting your business, you had figured out the appropriate price point – at least what the ball park was the price needed to be in.  As business developed creating a product line was a logical next step – having several products at various price points. But for most companies, the pricing – monetization - structure of the business was set long ago.  And as revenue grew changes to the basic business structure were small and infrequent.  And as revenue grow, you grew more risk averse – making business model changes nothing more than a rare passing thought.

New life old lifeNow you are looking at what to do around adding a cloud and mobile offering.  It’s obvious the old per copy pricing structure is not appropriate.  But is per user per month the right answer?  It depends.  Cloud and Mobile solutions are often sold to people that will be more casual users of your technology – whether that be a few minutes to an hour a day.  Some of the early adopters of design and engineering related cloud and mobile technologies are in the construction space where people are used to thinking and budgeting by project – with the number of potential users changing constantly as a project goes from concept through detailing to construction, on to commissioning and then to long term operations. Per user per month pricing models are a lousy fit for project based industries.

Many cloud and mobile technologies in the design and engineering space are all about getting the design information in the hands of people that historically only had access to derivative information – PDFs, DWFs, static images, tabular data derived from the designs, and so on.  Getting these people access to design and engineering data in real time – their getting their derivative views of the design information in real time – is of great value eliminating mistakes from old and down rev design data being used – and allowing rapid changes/improvements in design and engineering because EVERYONE that uses the data can access the most up to date info in real time. You know the value of your desktop apps to users that use your apps for many hours every week – but what is the value of cloud and mobile software to infrequent users – and users that use and create value based on the design data in very different ways and amounts?

You’ll likely be selling to different people too – the same companies you sell to now but into different departments – departments that are upstream (like sales and marketing) and downstream (like construction, manufacturing, and maintenance) from the people you know today.  These new potential buyers have very different needs, sensitivities, and budgets then the people you work with today.

So how do you build a business (licensing, pricing and sales) model to base (justify) your developing new cloud and mobile offerings?