Risk & Innovation Small Companies in Six Industries: Background Papers Prepared for the NAE Risk and Innovation Study (1996) / Chapter Skim
Currently Skimming:
4 Computer Software
4 Computer Software
Pages 61-82
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 61... ...
As wed as the oppor~ties created by new technologies and new markets, the foLow~ng factors seem to influence the emergence of new software companies: Relative ease of entry—It only takes a computer to make a shed programmer into a new "software business." There have been enough, highly public business successes that have started Tom humble beginnings to encourage entrepreneurs to enter the software industry. Software companies can have substarltial value if sold, even though they are not necessarily long-tem1 survivors.
|
From page 62... ...
Emerging software companies open exploit technologies or markets deemed too small or too rely for established players. Thus, new markets and narrow, niche markets that sometimes lead to considerably larger markets let new software companies develop the revenue stream, product, and core competencies of valuable new software businesses.
|
From page 63... ...
How small software companies deal with these developments will largely determine their growth potential. SIZE AND SCOPE OF SOFTWARE SECTORS Spending for externally developed software may be divided into two types: prepackaged software (SIC code 7372)
|
From page 64... ...
Industrial Outlook 1994. TABLE 3 Prepackaged Software Markets, 1991 to 1997 ($ millions)
|
From page 65... ...
Using these estimates, spending for PC-based applications software in the United States and Canada totaled more than $6.6 bdhon ~ 1993. These estimates for the different sectors of software development are summarized below: Internal development Pro~am'T=g seances Systems ~ntegr~ion Prepackaged software2 TOTAL TOTAL $19.4 bacon $19.3 bacon $S3.2 billion $91.9 billion $150-200 billion $242-292 billion ~ Estimates of annul revenues were calculated by multiplying 6-month data by a factor of 2.2; these data are not comparable to :~C data cited earlier.
|
From page 66... ...
Also, standardization of personal computer architectures in the United States has enabled software companies to create software and operating systems that can be incorporated by different computer makers. This is in marked contrast to Japan, for example, where six of the top 10 software companies are tied through industrial groups to a computer maker (the top four are NEC, IBM Japan, Hitachi, and Fujitsu)
|
From page 67... ...
. A detailed description of these smaller companies emerges from data in the Massachusetts Computer Software Council report, Software I77clustry 1993 Business Practices Survey.
|
From page 68... ...
By recognizing and exploiting these trends, start-up software companies, for example Broderbund Software, Learning Co., and Davidson and Associates, have created valuable software product "franchises." Broderbund has sold 8 minion copies in 7 years of its best-known titles, the Carmen Sandiego line of geography and history games and the Print Shop, a line of painting and publishing programs (Selz, 1993~. Similarly, M6xis, with its SimCity titles has created a new entertainment software geme.
|
From page 69... ...
Source: MCSC, Software Industry 1993 Business Practices Sunrey. current technology cycles continue to create the opportunities that create small software companies.
|
From page 70... ...
~deed, a major reason Nintendo and Sega have succeeded so spectacularly, in marked contrast to other Japanese software companies, has been their success in ideating this convergence (Schrage, 1993b)
|
From page 71... ...
, giving a cost-per-sale as high as20 percent in excess of the actualpriceofthe product. These costs, and the emphasis on high unit volumes, affect the profit model for smaller companies in prepackaged software (Massachusetts Computer Software Council, 1994)
|
From page 72... ...
For example, small companies that commit to port successful applications to a new computer by receive press coverage, hardware support, and occasionally advance orders for the new version by the computer maker. Finally' as smaller software companies seek to expand into global markets, they require strategic partnerships with international distributors.
|
From page 73... ...
The HPCC program areas are: high performance computing systems; advanced software technology and algorithms; networking; and human resources and basic research. If fully funded over the proposed five years, the HPCC program will represent about $2.0 billion over five years in addition to baseline spending for 1991 (National Research Council, 1992a)
|
From page 74... ...
New software companies often exploit research and ideas developed elsewhere—usually in universities or large, technology-intensive companies. The laboratories of IBM and AT&T Bell Labs especially, and also Xerox PARC have developed software technologies that have been successfully commercialized by new software companies.
|
From page 75... ...
Now, national distributors, including Ingram Micro and Merisel, exert enormous influence on the economics of software development, paying about 45 percent of list price to developers and distributing the product to resellers at 10-15 percent margins. New software companies that are just establishing a sales channel typically receive 75
|
From page 76... ...
In 1955 IBM delivered the XD-1 to MIT, patterned after Whir~wind -- that also inspired Digital Equipment Corporation and the minicomputer -- to serve as the "brain" of SAGE. Critical to its performance was a new memory architecture called "magnetic core memory", that later would appear in IBM's enormously successful System 360 computer -- as well as magnetic tape drives, and flexible software architectures that were all developed under government funding, and adapted almost immediately for commercial use (Ferguson and Moms, 1993)
|
From page 77... ...
We Software Industry 1993 Bz~QnessPrac2ices Survey collected data on the sources off~nancing for smaller software companies that raised capital in 1992 (Massachusetts Computer Software Council, 1994)
|
From page 78... ...
S Justice Department in connection to the extraordinary successes of Microsoft Corporation In personal computer software The Problem of Uncertain Intellectual Property Rights Uncertain intellectual property rights Mars)
|
From page 79... ...
In prepackaged software, for example, the trend to marginal-cost pricing has forced small companies to build an installed base quickly in newer markets in order to recover their costs. Capital requirements and management expertise required to expand these opportunities faster than the compenhon and sustain a market position are already a constraint for small companies, encouraging mergers to achieve critical mass.
|
From page 80... ...
In the future, smaller software companies may need to focus on opportunities that minimize capital investments. Small software companies wig depend increasingly on relationships why larger companies, for example to act as publishers and distributors for the software developed by smaller comparues.
|
From page 81... ...
Pp.3-14 in The International Computer Software Industry: A Comparative Study of Industrial Evolution and Structure' D Mowery, ed.
|
From page 82... ...
Pp. 15-52 in The Internationa1 Computer Software Industry: A Comparative Study of Industrial Evolution and Structure, D
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.