A drain of operational surplus from the user to the big players
Software products sold to the customers are now fast changing their version numbers. The versioning of the software products are seen to be a great point for the industry and companies who have their products going through many versions are considered to be a very upscale company technologically and is seen to be as a technological leader, trustworthy and would keep the customer always on the top of the technology race- this is true! Yes, of course, and to even give more credit to the company in most of the cases the new versions and patches are given almost as free upgrade. So where is the problem? It is a great benefit, right! One must be very grateful to the solution providing company, right? WRONG, absolutely wrong! One does not even feel that one is actually robbed royally through these fast changing versioning. But how can one be robbed if the user gets the upgrade free? – There lies the catch. We have to then examine the elements that get affected by this kind of changing phenomenon and where and how the user gets the backhand jab?
Technology and especially a soft technology would incessantly go through finetuning, micro-developments and feature increments! No harm in that and in fact this is what is desired and what it should be. The user would also grow up along with the software and the concurrent evolution of the user and the software would be the metric of the rate of the development of the sector in application software culture. The rate of such development is in fact aggrandized manifold because there are many rates that are collaterally developing – one being the rate of evolution of the software through its versions, the second being the rate of general market desirability from the users’ point of view, the third being the development of the user skill and the general community skill level that is the level of the industry- these rates do not have a mere additive relationships but do have a very complex relationship whereby the resultant effect is increased manifold. As an example the general and implicit requirement from a spread sheet or from a database query language has now increased to a near saturation level and has now transgressed into having mathematical and statistical functions that help to bring in the predictive analytics artefacts. Just a couple of years earlier the community was fighting with fixing the standard called SQL3 but now the race is leagues ahead- only in a time-span of five years. Any soft knowledge runs exponentially – a phenomenon that we have observed in the discovery of the Higgs-boson-analogous particle and completing of the Standard Model in the span of less than 7 years now since 2006. So it is actually some thing to be proud of and something to run for! We still need to fathom deep! Much deep!
Software is meant for applications – that means tools or applications to solve business problems and softwares are aids to solving those problematic. An application software is not basic science but application technology. In any application the critical most aspect is the USABILITY. A user should use the tool to find solutions outside the tool- and that is why an application software is known as a tool. A tool is defined in dictionaries as “ something (as an instrument or apparatus) used in performing an operation or necessary in the practice of a vocation or profession” -this clearly shows the attitude behind the meaning- something that helps to accomplish an act external to the tool itself, simply as an aid. With this meaning one finds that the cost of using the tool should be much less than that of solving the problem! A tool should never be an end to itself and should not be more expensive in terms of money, time and effort to use than actually solving the problem. The problem starts here!
If the user community has to spend most of its time in handling the tool, in learning the upgrade, in getting used to it- that is in getting acclematized then the tool loses its efficacy. We cannot keep on trying to innovate a super-hyper all purpose machine to start scribbling.
Every time a new version comes in the market the usability of the users takes a toll. Usability gives the users speed in repetitive operations, confidence in handling the tool to solve situations which are slightly off the usual mark, skills in trying newer solutions. If a user is never confident and never can master the tool simply because by the time she gets a hand on it the tool changes, then the user suffers under an inferiority complex – the quality of work takes a massive toll and the objective of using the tool to solve business problems falls flat- the entire investment goes for a toss. The surplus of this operation however is reaped by the provider even before the operation starts rolling. In this aspect the sale of such a technology that was supposed to be a good solution providing becomes a forward trading with more or less a negative guarantee or a guarantee of a loss. This is the terrible part of the philosophy of the economics of software application trade.
Usability is not a static process. Users get to the optimum level of usability in span of time and through a process. And much later the reach of the optimum usability the benefits starts rolling. The business in which the tool is installed will rise to its fullest potential of usage and even much later to its fullest potential of return of the investments comes much later in corresponding phases. Thus unless a user community uses the system for a good many time span there would be no gain or return. This process is summarily curtailed by the arrival of a new version , and the users spending time to get used to it and master it. With subsequent version changes coming into the fray, the user’s focus of work changes- the user slowly looses her value in the industry as a value-adding-resource and becomes a future candidate for the industry as a job-hopper with the additional skill of a tool-specialist. The loss of user industry is the gain of the software-application-savvy group. This is not only a general loss, it is a drain on the operations and on the value. The industry has now seen a huge outflux of business engineers and business analysts and business practitioneers into what we know as tool-specialist. This adds to the:
- 1. attrition of the user company
- denudation of the value of the user industry in terms of loss or resource and value
- denudation of the total skill level of the society, as an expert from the user industry leaves and joins as a rookie or lower skilled worker in a different industry and may be a generally available tool specialist for the provider company and its customer-space.
- The cost of acquistion for the user company because a new resource needs to be recruited.
- The cost of the training for the new recruit
- The cost of the loss of productivity during the time the person is coming to the original pace.
- The cost of adjustment with the members of the group.
With an average quantum of cost associated with each such change of versioning, we can easily calculate the effect of 3 or 4 such changes within a short span of two years [ that is the present industry rate of versioning changes and obsolesce] – The cost of such ownership is a cost that does not translate in any significant level of return- so this is not an investment and the user company never reaps any significant return-on-investiment, it is a cost-drain. The benefit is reaped by the product company.
A product company generally makes 5 to 10% profit in a very competitive arena of product sale for the first time- the profit starts rolling through support and maintenance, licence fees and customization. The total return on a sale in product software industry is as per normal industry standards stands to at least 5 times or 500% in the first 3.5 to 4.5 years. This is a long time and where the number of version changes would at least be more than 3. The benefit therefore would pile up each with a different polynomial.
The user company [ in economic terms] loses this amount of value addition. Now to be fair one might subtract from this loss a factor of 15% in terms of gain in business . But apparently the gain in accounting terms would be anything between 75% to 225% on the second and third year, but the reasons mentioned above cut down to this return a lot more and reduces the return back to that stable 15%- this has been the study results in Western countries. In third world countries the situation is very alarming because the gestation period and the period of reaching the optimum level of benefit is much staggered due to the slow moving market. The differential years say another 2 to 3 years becomes an excruciatingly bleeding time for the third world user world because during this time they are lagging behind the western countries because the user community here is at the lower level of the famous S curve of benefit. Thus the accounting return does not show the real picture of the economic return and the economy suffers. It would not be a very lengthy economic logic to prove that the differential value in the lengthening of the year of optimum level or sale actually is drained out very stealthily to the western economy- it is a national drain too!
This brings us to another sad aspect- A product company of a third world economy actually does not gain in the same pattern! However, strange it might sound, the market in the third world is extremely price conscious- this price consciousness makes the market get incited at a much later stage. The users in the third world country waits for a while and does not want to become the first buyer- price conscious is always collinear with an innate conservatism in the buying pattern.
During this time the competitors from the western countries and the big and traditional players come out with the next version. The product company in the third world therefore has to incorporate the competing version before even their first sale could start! That is the other side of the drain that is known as obsolescence. A third world product provider keeps his development team perennially on the anvil and the cost is actually a steady stream with no guarantee of a pay back sale. The drain that is so symptomatic to a big and traditional multinational first world provider is actually a drain too. The result is horrendous, both the provider and user in the third world bears the brunt! They loose – the first world gains! In economic terms the differential is the super-super-profit of surplus extraction!
The cost of fast obsolescence is ensured by the product companies by summarily stopping support of old versions. It becomes difficult for any user company to carry on serious business operations without any support in the first two years. A very intense development work with any product can run smoothly only after the second half of the third year. If the product company changes major version within these two years and some minor versions or patches in between, the need of support and frequency of support calls shoot up. Support incurs cost but the time of wait in the middle of mission critical development costs the development in terms of schedule variance, effort variance and skill variance- all three pile up in a very complex algorithm and the effect is disastrous.
How to avert obsolescence:
It is in the attitude of the product company and in the product design. Contrary to popular and approved misconception no matter whatever futuristic design a firm does with its product design it will fall behind in currency because the whole world is designing with the future in the mind and no two such designs corroborate or share – this is so unlike the scientific research world. The reality of fast changing designs now has moved much faster than any individual firms conjectures. One does not find any solution in that track.
A product should actually be designed as open development where the users should take over the further development and improvisation of the product in their self-service tract. The user should be empowered enough to add plug ins and add modules [ this does not necessarily mean one should expose the source code to the general public] through plug-in cartridges, facilities or with connectives. Each user should therefore be in a position to feel the ownership of newer feature additions and development that would give them their own niche product from the same base product. This is the post-modern style of our technological development methodology.
Ideal Analytics does that exactly, it is not an open source product where the developers do not provide any support. The company supports the client throughout, but the product is an open-solution where the rendition from IA can be externalized and integrated into further plug-ins and further applications down the line. The result set can be even dumped in spreadsheets and enliven them for further analysis and calculations.
Setting up new formulae, new scripts, new applications, new connectives can be easily integrated within the product. This is the methodology-as-an-offering to the customer to avert the tenuous and excruciatingly bleeding path of obsolescence-compulsion!