Activists worry about the environmental cost of discarded mobile phones, personal computers, and other technology. Perhaps they should also worry about the swelling graveyard of start-ups and tech titans gone bad.
As Le Monde points out (in French), though businesses fail in all areas of the economy, technology ventures, and especially Web start-ups, prove particularly short-lived.
It's Joseph Schumpeter's creative destruction...in overdrive.
Le Monde suggests three reasons: the speed of innovation/evolution (AOL's walled-garden approach meets Yahoo's open-portal approach), the ability of incumbents to crush nascent competitors (Netscape meets Internet Explorer), and the shortcomings of business models (Skype: only $500 million out of more than 520 million subscribers).
These are good points, but perhaps there's another: technology companies are increasingly disposable because they're so darn cheap to create.
This affects start-ups and incumbents alike. For the latter, perhaps the negligible cost of starting a new company fosters the comparative disposability of such start-ups. As Bernard Dalle, a general partner with Index Ventures in London, notes, start-ups need only rent essential infrastructure like hardware and software, and that rent is dirt cheap.
Ideas that couldn't survive a $5 million to $10 million capital-raising process might well weather a friends-and-family round of $50,000...and expire shortly thereafter when the idea proves barren.
But it's also true of the incumbents: Gulliver-esque Microsofts can fight off most of the Lilliputians, but an increasing array of the pesky imps sprout into adulthood (e.g., Google, Salesforce, Facebook).
Unfortunately (or fortunately, depending on your market position), this process of creative destruction may well be accelerating, and open source is one of the primary fuels.
The Linux Foundation's Jim Zemlin insists that the pace and price of innovation today requires open source, a communal effort that isn't bogged down by the bureaucracy or cash constraints of any one company. He may be right.
That certainly seems to be one lesson to take from the success of Linux, Firefox, and other open-source projects, particularly those that are community-led, as opposed to company-led. It's hard to compete with a group of self-selected, highly focused developers who can focus on good code, not good financial quarters.
Now that virtually every technology company depends upon and contributes to open-source software, we may well be laying the foundation for even more industry innovation...and corporate bankruptcies.
Guess what? There's nothing we can do about it. Nor is there anything we should do about it, except focus on building long-term customer value rather than short-term start-up goofiness. That's the way to thrive in the fast-evolving world of technology, because it's the one thing that never changes:
Customers pay for value, and companies that consistently deliver real value acquire the most customers.
Tim O'Reilly points toward this in his call for developers to "work on stuff that matters." It's a reminder but also a warning.
Microsoft is still with us because it has delivered an amazing amount of customer value in its 30-plus years. The same is true of IBM, Oracle, SAP, and other industry incumbents.
But it's equally true of relatively new companies like Salesforce, Red Hat, and Google, which have eschewed gimmicky software and flimsy business strategies to give customers tangible, ongoing value. None of these companies sought an early exit through acquisition. None of them were content to build for the quick flip.
So, yes, technology may be a veritable boneyard of failed companies, and essential ingredients like open source may accelerate the demise of start-ups and incumbents alike. But those companies that use such ingredients to deliver above-average customer value are going to endure...and thrive.
Follow me on Twitter @mjasay.
For the first time in years, Red Hat didn't take first place in CIO Insight's annual Vendor Value Survey. That honor goes to Google. Though Red Hat registers a close second, Google's practice of freely giving away much of its software saw it rise above Red Hat, which took second place in a survey that it has dominated in the past.
CIOs rank vendors according to value
(Credit: CIO Insight)Two security firms - RSA Security and Check Point Software - took first and third place overall, with Google, Cisco, and Dell claiming second, fourth, and fifth places, respectively. Red Hat claimed the seventh spot in the Overall Value category, but has been the leader in the Software category for years.
Importantly, Novell jumped four places to claim fifth place in the the Software category. But for low customer loyalty scores and Novell would have gone higher in the rankings. Even so, it's a testament to the changes Novell has been making that it performed more strongly than Oracle, SAP, Salesforce.com, and other leading software vendors.
Red Hat, however, is in strong shape, perhaps particularly against Novell, as Sam Varghese writes in IT Wire, with a 92 percent loyalty rating with CIOs. CIO Insight suggests that Red Hat's "responsiveness to customers' needs engender[s] high loyalty levels." In a recession, Red Hat will need to depend on this loyalty to drive renewals and upsells.
Despite losing the top spot to Google, Red Hat remains in a strong position. Google got top marks for giving away software, "continued innovation, and strong moves in the mobility space," but as Google retrenches a bit to prop up its advertising business during the downturn, I suspect it may lose a little favor with enterprise CIOs, leaving the door open to Red Hat to reclaim its value crown.
Regardless, this is also a warning to Red Hat: like Google, Red Hat needs to continuously innovate at both the service and product levels to ensure long-term customer loyalty.
NetworkWorld nails it with an article describing how proprietary licensing encourages companies to spend time protecting their past investments, rather than focusing on the future. While the article deals with Microsoft's ongoing legal battles with Novell over WordPerfect (Remember that?), the principle is broadly applicable:
Software vendors and their customers are better served when vendors concentrate on the Next Big Thing rather than protecting their aging (or even dead) technological turf. Let's hope that open source software licensing makes that happen.
How does open source apply? Open source, after all, doesn't change a company's desires to protect its intellectual property. It does, however, significantly change what "protecting intellectual property" means, and it dramatically changes how open-source vendors get paid vis-a-vis their proprietary counterparts.
Consider what Red Hat CEO Jim Whitehurst told me in a recent interview:
People forget that software can be a multi-round game. Most software companies get customers locked in and they're stuck. Eighty percent of commercial software functionality is created to drive an upgrade cycle; in other words, to serve vendor needs, not customer needs.
... Read more
Forrester just released a report that should be required reading for enterprise software vendors who insist on inflicting the 20th century on their customers. According to Forrester, "software licensing and pricing continues to be marred by complexity, soaring maintenance costs, and a lack of flexibility and alignment with business goals."
In the French version of the synopsis, Forrester gives even more detail. For those of us who compete with these bloatware kings, this isn't news. But for enterprises who haven't been on a buying spree lately, you're in for a rude awakening:
... Read more- prev
- 1
- next
