The Software Paradox Quotes

“The measure of intelligence is the ability to change.” — Albert Einstein”
― Stephen O'Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“The solution to problems of adoption is not a better product, but a focus on barriers to adoption.”
― Stephen O'Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“The most dangerous belief for any software company today is that the solution to their adoption problem lies in better software engineering.”
― Stephen O'Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Where technology acquisition was once the province of the CIO, today it’s the practitioner leading that process, because by the time a CIO typically hears about a project today, a majority of the technology and architectural decisions have already been made.”
― Stephen O'Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“outsourced research and development to startups, believing that the cost of the acquisition premium is more than offset by lowered risk and costs with better product predictability.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“The weight of evidence for an extraordinary claim must be proportioned to its strangeness.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“It is a paradox that the economic value of software is falling even as its strategic value rises, and paradoxes are by definition challenging to accept.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“The most important consideration, integration semantics aside, is to determine what a business needs to control to deliver value to a customer. It is from there that everything else, strategy included, follows. Software may be the most important given component, but if it’s one of many, the wider strategy needs to take that into account.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Apple has long been an adherent to the full stack philosophy, delivering a tightly integrated experience that it controlled top to bottom, even if it outsourced the actual manufacturing.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“As Dixon said when he coined the term: Prominent examples of this “full stack” approach include Tesla, Warby Parker, Uber, Harry’s, Nest, Buzzfeed, and Netflix. Most of these companies had “partial stack” antecedents that either failed or ended up being relatively small businesses. — Chris Dixon”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“full stack startups are those whose focus extends to each layer necessary to deliver the desired user experience.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“In such a climate, the more appropriate way to think of software is as an organizational asset: nothing more and nothing less. Looking at software without assuming monetization can allow more strategic opportunities to emerge.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“While it was possible, then, for Apple to make up ground in software very quickly, doing so in the world of data was substantially more challenging even for a company of its resources. There are no shortcuts, as data simply cannot be generated overnight. There are only two means of producing it: collecting it over time, or acquiring an entity who has done so. Unlike software, then, which is a thin shield against would-be market entrants, organizations that amass a large body of data from which to extract value for themselves or their customers are well protected against even the largest market incumbents. Every software organization today should be aggregating data, because customers are demanding it. Consider, for example, online media services such as Netflix or Pandora. Their ability to improve their recommendations to customers for movies or music depends in turn on the data they’ve collected from other customers. This data, over time, becomes far more difficult to compete with than mere software. Which likely explains why Netflix is willing to open source the majority of its software portfolio but guards the API access to its user data closely.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“The most dangerous belief for any software company today is that the solution to their adoption problem lies in better software engineering. The solution to problems of adoption is not a better product, but a focus on barriers to adoption.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“The fact is that the majority of software businesses today are leaving money on the table by focusing strictly on the production and delivery of software at the expense of other customer needs in the process, whether that’s operational assistance (services), improved decision-making (telemetry analytics), or the ability to amortize their capital outlay over longer periods of time (subscription models).”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“it’s counterintuitive that the conventional wisdom is that current market success equates to future market success. But this is, for better or for worse, typical. It is important to actively counteract this dangerous contentment with the status quo”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“As a result, the most important recommendation for organizations of all shapes and sizes moving forward is to anticipate worst case scenarios at a minimum. Even in cases where organizations cannot or will not make some of the operational changes recommended below, the exercise of focusing on nonsoftware areas of a given business can help identify under-realized or -appreciated assets within an organization. Particularly ones for whom the sale of software has been low effort, brainstorming about other potential revenue opportunities is unlikely to be time wasted. One vendor in the business intelligence and analytics space has privately acknowledged doing just this; based on current research and projecting current trends forward, it is in the process of building out a 10-year plan over which it assumes that the upfront licensing model will gradually approach zero revenue. In its place, the vendor plans to build out subscription and data-based revenue streams. Even if the plan ultimately proves to be unnecessary, the exercise has been enormously useful internally for the insight gained into its business.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Achieving operational excellence in categories above and around software is exponentially more difficult to achieve than in software alone. But the rewards are much greater, and in many cases, the Software Paradox may mean that would-be providers of software have no choice but to expand their product focus.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“describes as a “full stack startup.” Nest could certainly have pursued a less ambitious and lower risk strategy of developing its learning software and user interface, then license it to organizations with greater logistical and manufacturing capabilities but less competence within software. The problem with this approach is that, by sacrificing control of the stack, you introduce opportunities for partners and customers to negatively impact the overall offering.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“There are many potential explanations for the less-than-robust performance, but IBM’s current strategy suggests that one component at least is a challenge to the traditional shrink-wrapped software business. As much as any software provider in the industry, IBM’s software business was optimized and built for a traditional enterprise procurement model. This typically involves lengthy evaluations of software, commonly referred to as “bake-offs,” followed by the delivery of a software asset, which is then installed and integrated by some combination of buyer employees, IBM services staff, or third-party consultants. This model, as discussed previously, has increasingly come under assault from open source software, software offered as a pure service or hosted and managed on public cloud infrastructure, or some combination of the two. Following the multi-billion dollar purchase of Softlayer, acquired to beef up IBM’s cloud portfolio, IBM continued to invest heavily in two major cloud-related software projects: OpenStack and Cloud Foundry. The latter, which is what is commonly referred to as a Platform-as-a-Service (PaaS) offering, may give us both an idea of how IBM’s software group is responding to disruption within the traditional software sales cycle and their level of commitment to it. Specifically, IBM’s implementation of Cloud Foundry, a product called Bluemix, makes a growing portion of IBM’s software portfolio available as a consumable service. Rather than negotiate and purchase software on a standalone basis, then, IBM customers are increasingly able to consume the products in a hosted fashion.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Whether we’re looking at Apple or Google, then, the lesson is that software is once again a means to an end as opposed to an end in and of itself. Which is a profound statement about the commercial value of the software powering the devices that we all use today.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“By combining software with another, more readily monetized product — services, in this case — Amazon is able to efficiently extract profit from a growing, volume market. What’s more impressive, however, is that because Amazon is building primarily from either free software (in the economic sense) or software it developed internally, it is paying out minimal premiums to third parties for the services it offers. Which means that not only is AWS a volume business, it may be a high-margin business at the same time. Amazon does not break out its AWS revenues, so we’re forced to rely on estimates, but UBS analysts Brian Fitzgerald and Brian Pitz projected in 2010 that AWS’s margins would grow from 47% in 2006 to 53% in 2014. Last year, Andreas Gauger, the chief marketing officer for Amazon competitor ProfitBricks, estimated Amazon’s margins were better than 80%.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“As such, the company’s value from a technology perspective isn’t software, strictly speaking, but rather outsourced effort. Any business can download and run software like MySQL or PostgreSQL at no cost. But hosting it, keeping it up and running, backing up the databases, and exposing them safely to other applications requires expertise and effort. For many customers, and AWS customers in particular, then, the value isn’t in the software itself — because that is available at no cost — but the saved expertise and effort of consuming the infrastructure software as a service. Amazon, in other words, is making money with software, rather than from software.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Open core/hybrid source Probably the most common model today, open core describes an open source project that is partially, even mostly, open source, but with some portion of the project or some features remaining proprietary. Typically there is a basic level of functionality — referred to as the core — which remains open, and proprietary features or capabilities are added upon and around this. The highest profile example of this model today is Hadoop. Cloudera, the first organization to commercialize the data processing platform, contributes along with other organizations, commercial and otherwise, to the base Hadoop project, which is open source. A proprietary product that includes management functionality is then sold to customers on top of the base open project. This model is viable, but can be difficult to sustain. One of the challenges for those adhering to the open core model is that the functionality of the underlying open source project is evolving at all times, which means that the proprietary extensions or features must outpace the development of the open source project to remain attractive to customers.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“So if open source is cannibalizing the commercial software markets, it’s all smooth sailing for those who commercialize open source, right? Well, not exactly. In order to monetize an otherwise free and open source software product, vendors have been forced to develop creative new business models to get buyers to pay for what they can otherwise get for free. The most common of these are described below. Support/service The most common model of commercial open source is support and service. Instead of paying for the product, buyers pay vendors to support a product they can otherwise obtain at no cost. The advantage of this model is that most large organizations require commercial support for production applications, so sales is less of a challenge. The disadvantage of this services-only approach is that the deal size is commensurately lower than with traditional commercial software that includes both a license component and support and service.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Organizations seeking to commercialize open source software realized this, of course, and deliberately incorporated it as part of their market approach. In a 2013 piece on Pando Daily, venture capitalist Danny Rimer quotes then-MySQL CEO Mårten Mickos as saying, “The relational database market is a $9 billion a year market. I want to shrink it to $3 billion and take a third of the market.” While MySQL may not have succeeded in shrinking the market to three billion, it is interesting to note that growing usage of MySQL was concurrent with a declining ability of Oracle to sell new licenses. Which may explain both why Sun valued MySQL at one third of a $3 billion dollar market and why Oracle later acquired Sun and MySQL. The downward price pressure imposed by open source alternatives have become sufficiently visible, in fact, as to begin raising alarm bells among financial analysts. The legacy providers of data management systems have all fallen on hard times over the last year or two, and while many are quick to dismiss legacy vendor revenue shortfalls to macroeconomic issues, we argue that these macroeconomic issues are actually accelerating a technology transition from legacy products to alternative data management systems like Hadoop and NoSQL that typically sell for dimes on the dollar. We believe these macro issues are real, and rather than just causing delays in big deals for the legacy vendors, enterprises are struggling to control costs and are increasingly looking at lower cost solutions as alternatives to traditional products. — Peter Goldmacher Cowen and Company”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Whether the lens used is market conditions, or the performance of bellwether software entities, or even individual products, the trend is the same: it is growing more difficult to sell software up front, on a standalone basis. More important, however, the market appears to be pricing this into its valuations, favoring models that make money with software over those attempting to make money from the sales of software.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“This is the Software Paradox: the most powerful disruptor we have ever seen and the creator of multibillion-dollar net new markets is being commercially devalued, daily.”
― Stephen O’Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“Every software organization today should be aggregating data, because customers are demanding it.”
― Stephen O'Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market

“developers — the new kingmakers within the enterprise — are heavily advantaging time to productivity when it comes to technology selection.”
― Stephen O'Grady, The Software Paradox: The Rise and Fall of the Commercial Software Market