Chapter 11: Basics of the Business

Overview

Gerald D. Cohen

Our company is in the sector of the software business that involves delivering information. We're in two sectors of it: one is what is called business intelligence, where we deliver information to human beings; the other is the application integration business, where we deliver information to other processes (that's sometimes called middleware). In all cases, it involves the delivering of information.

We're an established company; we've been in business 28 years - we started in 1975. No one is writing books about how companies continue to stay in business. Most of the business books talk about how to introduce a hot new product and get it to catch on. We started when the world of computing was in batch phase, moving to time-sharing; it was called host-based computing. We introduced a product called Focus, which was the first fourth-generation language. We are the inventor of fourth-generation languages. That, for many years, was one of the hottest standards around, and everyone wanted to use a fourth-generation language for their information systems. The theory was, why would you want to write a COBOL program, for example, to generate a report? You'd have to get a programmer and explain to him and it could take weeks. You just want to get your information. So the Focus program created this category of fourth-generation languages, and we sold Focus all around the world to companies with mostly large IBM mainframes. Eventually, when UNIX came in, we put Focus on UNIX and other machines.

We've been with the information industry through all of its phases. We started with host-based computing, and then went to time-sharing, then to minicomputers, then to PCs, then to client/server, and now it's the Internet. Our flagship product today is WebFOCUS, for example, and our integration product is called iWay Software.

We're basically doing very much what we were doing years ago. Organizations need information to run their businesses. That's the way things happen; it's not a new fad. The main thing that has changed is the form of delivering the information. Years ago, a lot of information was delivered on green screen terminals. Today a lot of information is delivered via your browser, or perhaps you get it through your e-mail. The second major change within the business is whom we deliver the information to. Years ago, the only place you delivered information was to someone who worked in the company; you had an ID on some machine, you logged in, and you were able to get information. If you were outside the company - a partner or a customer - you didn't share that information. Today we're delivering information between companies.

We're in a high-tech world. We sell software to companies under the expectation that they will use it to do several things. First, they will make their existing processes more efficient. Second, they will be able to save money some way internally. And, third, they'll be able to use it for competitive advantage; that is, they will do something that will attract new customers or solidify their customer base.

The marketplace changes. A few years ago the market was all about competitive advantage: "I want to get out there and do something on the Internet before the next guy." Today, a great deal of the emphasis is on using technology to save money. These things go in cycles. The challenge to us as a software company is to show companies how they will save money, become more efficient, or gain a competitive advantage.

Making money is a matter of scale. There is an investment cycle to build a product. Before you can sell it, it has to be useful enough that someone can use it productively. So there's an investment process - it's not a matter of just a demo. Demos are good for attracting investors, but by the time you're out to sell it, it has to really do something useful. And software is not a single investment; it's a continuous investment. It's an intellectual product and intellectual products are easier to augment. It's easier to have new releases and add features to it. If you buy, for example, a camera, and then two months later the camera manufacturer comes out with some slick new feature, you're out of luck. In software, however, you can call up the manufacturer and there's a maintenance counter and it ships you the new software. There's a more continuous upgrade. You don't really get obsolete in software. What that means is that there is a flow of money that comes in from selling upgrades. So a software business model is that you first invest in building products, you find some method of selling it, and you get both direct revenue and maintenance revenue from upgrades. That's the business model of all software.

The difference between larger and smaller software companies is mainly in the channels they use. Microsoft really doesn't sell directly; it sells through Microsoft agents. You buy from a local supplier of Microsoft products. IBM, in contrast, will mostly sell to you directly through the company's own sales force. So you can either sell direct or indirect. The pricing can be either that you buy it one time and pay maintenance, or you buy it on a subscription basis - Microsoft, for example, allows you to pay so much for Windows XP over the next two or three years, then you sign a new contract.

We sell using all those models, depending on the marketplace. In the Internet marketplace, if it's for Web Focus, which is for human beings getting information, we might sell it based on the power of the machine. If it's for a larger machine, we'll charge you more money. We may, in some occasions, sell it based on the number of users on a machine. For example, if the application is for internal people, we can measure users. If it's an external application, we can't. So, it's usually sold by the power of the machine, the number of processors on the machine. The user either pays for it by subscription or pays one time.