ISVs: The path to a new Eldorado

The importance of digital transformation is such that the digital interfaces between a company and its clients play a major role in a company’s success.

What would Uber be without its mobile interface? Software has gone from being complementary to an offering to being the deciding factor in a purchase,  and often the  one that wins a market more quickly. The term “uberisation” is now commonly used, sacralizing the supremacy of the user experience over the product itself.

This user experience is based on innovation, which has become the quickest and, when it works, the cheapest way to establish a market position.
It’s a well-known formula: take a traditional business, split it up, invest heavily in a multi-terminal software solution and play on the mass market effect. If you’re quick enough you can crush the competition, if not you’ll get bought out. 

But this is just a first step beyond the purely economic activity. A new source of value is to be found in the digital traces we all leave behind us and their monetization. Let’s not get into the debate about who the digital trace belongs to; he who walks the path or he who builds it …Whatever, these traces and the use thereof are sources of income. This is the underlying philosophy behind big data - knowing how to collect and monetize the information.
The value that was originally based on a physical offering is displaced to the means of accessing that offering and then to the information generated by using that means.

Historically, a hotel room’s value was in the room itself. Today the numerous booking sites have taken precedence over the intrinsic value of the room. It’s as if the hotel switchboard now has more value than the hotel itself.

A booking website is not, as one might think, just a practical way to reserve a room, it is also a way to learn a lot about someone. If they are alone or in a couple, their income bracket, if they have children, the countries they visit etc. A wealth of information, which when isolated is of value to the company itself, but when linked to other sources of information provides a very precise profile of the individual’s tastes, expectations or plans. This has been made all the easier since we freely participate in linking these various sources of information together via automatic sign up applications such as those offered by Facebook, Google+, LinkedIn…We feed and connect the knowledge bases to an extent that defies imagination.

Seen from this perspective, controlling the channels through which the information circulates is strategic, but internet’s architecture makes this difficult, so since one can’t control the channels, the point of entry is the solution. This is why software publishers have become the cornerstone of many major industry players. IBM, who understood some time ago that “soft is king” has not only continued to build a catalogue of software offerings, but has also become a resource centre for software publishers (via its tools and Cloud offerings).

Beyond Big Blue, the industry as a whole is chasing software publishers and particularly those specialized in specific lines of business, because having a software publisher “in your hand” now also means having the market they target; an approach by business line also has the advantage of positioning oneself on high-growth markets.

Going back to the example of the hotel business, who would you say knows this market best?  The hotel unions, major hotel chains or sites such as Booking.com, Hotel.com, Tripadvisor and such like..?  Even worse, or better (depending on your point of view), who knows best the hotels’ clients - those same sites or the hotels who are, after all, the product suppliers to the end-users? We live in a world where the manufacturer is becoming just a supplier to the creator of information flux. Just as in distribution the distributor’s brands nibble inexorably away at linear metres, one can easily imagine that, after capturing the information flux,major players will move up in the value chain. In fact this is already happening. 

Apple is a good example of these strategies that are coming to the fore…in just one year Beats, Semetric and Camel Audio have come into the apple’s fold; so many companies linked to the music business…where Apple is now leader in terms of flux. The next phase consists of Apple putting pressure on the big players to promote its products and future solutions against those of companies such as Spotify and YouTube.  In fact the aim is not to kill free content but to capture the flux it generates to monetize it better. The time will come when the big players in the music industry, weakened by years of struggling against digitalization and a concentrated distribution, may well end up belonging to Apple or their like. Once again, it all started with software – iTunes…

To give another example, IBM recently teamed up with Apple and Johnson & Johnson to develop a cloud dedicated to health, using “Watson” its artificial intelligence technology. The aim is to collect data from the medical ecosystem. In passing IBM acquired two start-ups Explorys and Phytel. Explorys works in medical data collection.

The market is very fragmented which is explained by the need for local offerings, due to product interface, but also often because of specific regional rules and regulations. The majority of software publishers employ between 10 and 250 people which makes them relatively easy to prey on, especially since the move to the SaaS business model has taken its toll on cashflow for many of them.

See statistics from the compuBase database for ISVs