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May 28, 2002

A Treasure Hunt

The true value of software is in integration and support, not the software itself

By Michael J. Hudson

Let's say that your company is currently developing a number of internal enterprise-level software applications and you've put a lot of time and effort in coming up with just the right architecture and design for each project. With all this work and money spent, you might start thinking that one or two of these strategic business applications may have a much broader appeal and independent value than its current mission of simply supporting internal processes. Maybe, some of the cooler subcomponents that you've developed could take off, or maybe just a scaled-down version of the software framework itself is worth something. In any case, you're looking to cash in on your ROI by changing a part of your business model from an internal value-add to an external sales opportunity. Can you do it?

Fool's Gold?

Here's the problem: You think you have a potential gold mine in the proprietary software that you've built, and you're holding it close to your chest as your ace in the hole, not daring to let others in on your stuff. However, in today's economy, actually extracting real value from your own intellectual property is getting harder and harder, for a couple of reasons:

Most software concepts inside or outside of the business world have been done and written a million times over. And more than likely, you could have found needed pieces from another company either for a substantially lower cost or, in a lot of cases, free. The real cost in software development these days comes in integrating and specializing those pieces.
Software, like any digital media, is easily copied and distributed. Regardless of the legalities, the moment your software is out there, it has a large chance of being copied in part or as a whole and distributed without you in the middle. The monetary value of the software itself eventually becomes zero. Only by adding enhancements and fixing bugs can you keep making money off of that piece of software. And at some point, the amount of revenue these enhancements make won't match the effort expended on them.
Providing commercial software is more than just creating and selling it. You also need to provide support for it and invest a good amount in software maintenance and documentation. A well-known fact is that most of the cost of software comes from maintaining it rather than the actual act of creating the software.

Follow the Money

In the end, selling your internal solution isn't really economic. And more and more, companies are starting to realize that the monetary value of the software itself is less and less. Currently, the most used technologies are all public domain or open source — XML and Java. People make money from integrating them into software environments or simply facilitating the use of the technologies themselves. However, no one really makes money selling the technology itself. XML is a specification free for all to read and use. The Java language, as well as Java compilers and libraries, are free to download and use off of Sun Microsystems' Web site.

And yes, even Microsoft has started to slowly join this movement. It's realized that most people are quite satisfied with their Office 98 word processor and don't really need or want to upgrade to anything else. Selling the idea that an upgrade brings substantial value is getting harder and harder. So, Microsoft is reinventing itself into more of a services model with its .NET Web services framework (which is also built on free and ready-to-use standards such as simple object access protocol and universal description, discovery, and integration. In fact, Microsoft has also started a program called Shared Source where it actually lets selected partners view and use its proprietary code for their particular uses. It's still not true open source because Microsoft still owns the code and you can't change it. But just this small step of letting others view the code is a lot closer to open source than Microsoft was willing to go just four years ago. And it's also proof that the value of its software isn't the code itself.