Notwithstanding a 25-month old recession that has reduced business spending in the most seriously affected economies, the software industry is quite resilient, looks to recover from a resurgence of business spending late in 2009 or early 2010, and therefore continues to offer tremendous potential for current competitors and new entrants (Montalbano, 2009). One fundamental reason for abounding opportunity is that the needs of businesses for market intelligence, performance assessment, financial reporting, and operating efficiencies are the same virtually everywhere. Hence, applications that meet the test of user acceptance in one country inevitably find markets elsewhere. Microsoft Office and comprehensive enterprise resource planning program suites (e.g. that of SAP AG of Munich) are excellent examples.
For the American market in general, financial-services customers account for some 21% of software demand, followed by manufacturing with roughly 15% to 18% share (Pettey and Stevens, 2009).
Market Analysis (Business Intelligence and Customer Analysis)
Software X will compete within the business intelligence (BI) category, generally accepted to mean the combination of data warehousing and market information tools that strive to mine patterns of customer behavior and turn that into insight and actionable market planning (Software Magazine, 2009). This is different from customer relationship management (CRM) software, which seeks to manage the order collection- after the sales cycle to improve cash flow and heighten customer satisfaction.
In 2005, systems market researcher IDC estimated, the BI category amounted to $5.7 billion in global license and maintenance revenue. The category could look forward to robust growth in the near term from a combination of wider market penetration, experienced users wanting to upgrade to better query and reporting tools, and companies looking to integrate BI capability into a wider variety of business processes (Vesset and McDonough, 2006). North America and Latin America combined for more than half of total demand in 2006, followed by EMEA, with a one-third share.
Within the total BI market, a new entrant like Software X will have to face up to:
Increasing consolidation by the ten leading vendors;
Competition from the most established and strongly-promoted names in application development: IBM, Microsoft, SAP/AG, and subsidiary Business Objects, SAS Institute (of statistics package software fame), direct competitor SPSS, Cognos, Hyperion, Oracle, MicroStrategy, and Information Builders.
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Entry for the relatively obscure Software Company X is facilitated by the global scope of the BI software market, the fragmented nature of the industry, low hurdles to entry, and the consequence: many niche markets exist (Montalbano, 2009).
Key Success Factors
Given fragmentation and the SWOT analysis, the KSFs comprise product and service capabilities:
- Assembling all relevant BI data;
- Into monitoring “dashboards”;
- The system is dynamic and updates up to the minute in real-time;
- 99.99% uptime;
- Customisable and “scalable”;
- Includes training;
- Maintenance and upgrades free of charge;
- Acquisition costs considerably less than the $3+ million typical of ERP firms.
Software X promises to refine current direct marketing approaches and improve cost-efficiencies. The primary opportunity foreseen at this time is that multi-client advertising agencies, DR/DM agencies, and “big box” mass merchandisers like Tesco will be the most likely to realize the value-added benefit of Software X: being able to offer deals and ‘specials’ on multiple product lines in every direct-mail piece or emailed brochure.
The mission of the Product
Software X is a business intelligence software system that applies artificial intelligence (AI) to the analysis of credit cardholder data. The output consists of predictions about replenishment purchases or ‘unmet needs’ that consumers might need to meet in the next 30 days.
- Introduce Software Company X as an innovative newcomer in the BI category.
- Generate 100% awareness within six months among prime prospects: financial service institutions and mass merchandise retailers for Software Package X.
- Entice trial among at least 50 potential “Country Exclusives” and 50 more clients who indicate an interest in becoming a “City Exclusive” user.
- Achieve break-even in the first year, including covering development/R & D costs.
- Attain at least 50% margin.
Software X will be positioned as the breakthrough in predicting short-term consumer demand that offers at least double the predictive accuracy of prior BI software, guarantees a doubling of direct-response campaign revenue every thirty days and, to top it all off, is risk-free.
Distribution Channel Strategy
Transition the market from the dominant practice of marketing ERP and BI applications as packaged installation CDs and manuals in return for millions of dollars for ‘site licenses’, training, consultation, and maintenance costs. Resistance to substantial upfront and continuing costs finally spelled acceptance around 2003 for the ‘pay-as-you-go’ business model, more formally known as SaaS (software as a service). It is proposed that Software X be marketed exclusively via the SaaS channel and that users be charged: a) A dollar for every marketing lead the BI system ‘discovers’ as likely to make a specified consumer good purchase with a credit card within the next four weeks or so; b) 10 dollars for every prospect converted from a competing brand.
The secret to the large revenue stream (Appendix A) is that Software X will already have 120 million names of cardholders who have agreed to merge their shopping data in Company X databases and receive direct mail solicitation pieces.
- Pricing – Given the strong potential for improved ROI, we propose ultra-premium pricing for Software X. In the course of the price elasticity test of value perception in a conjoint analysis interview against alternative total costs of ownership (TCO) for outright purchase, a charge of $1 or $0.50 per qualified lead seemed absurdly cheap compared to average site license acquisition costs of $2.2 million for boxed software and total first-year costs of $5 million.
- Promotion – Given limited advertising and promotion resources at Company X, the most prudent recommendation is to embark on a two-stage campaign:
- Introductory – Create recall and recognition for Company X by announcing the BI software breakthrough in full-page, full-color ads in about two dozen metropolitan newspapers in the UK and the USA, in the business press such as Businessweek and The Economist, and by participating in about 21 IT-oriented trade shows scheduled in 2010 throughout Germany, France, East Asia, the Middle East, the UK, and the U.S.A.
- Sustaining Phase – Once a basic brand recall has been achieved for Software X, the second phase of the campaign will generate trial and conviction-to-purchase.
This calls for purchasing leads lists for the chief information officers (CIO’s) of every financial institution (FI) in the U.S. and EMEA that is also a credit card issuer. Company X will concentrate on penetrating and earning a market share in this hugely important market segment in the first year, to the exclusion of all others. The invitation will be to participate in a series of webinars on the specifications of the software and consumer conversion rate case studies which Company X shall have generated in test runs throughout the second half of 2009. The incentive to participate in company-sponsored webinars will be FREE 30 DAYS TRIAL and city or country exclusivity for the first twenty that sign up.
- To avoid losing business – and overloading Company X servers, the free trial shall be limited to a maximum of 5 million leads generated from the company database of 150 million names and addresses (and still rising). All trial users will have access to the same initial pool of 5 million.
Table 1 (Appendix) shows that the Software X launch project will achieve breakeven if just two “Country Exclusives” and one “City Exclusive” sign up for the service. This is an extremely modest target.
Based on the high incremental sales potential Software X holds out, we can confidently predict a great deal of interest.
A sales target of $225 million should be within the bounds of possibility, based on signing up ten “Country Exclusives” and one “City Exclusives”.
As a percentage of forecast revenue, the liquidation of advances for software development currently estimated at $12 million will be the largest single expense. Such “amortization” will amount to a negligible 5.3% of gross revenue.
The second-largest cost item will be advertising: $7.9 million in specialized media, timed with a heavy upfront burst from January to March to build awareness and trial interest quickly.
Even tripling this marketing outlay is unlikely to seriously deplete gross profit since the budgeted amount is just 3.5% of revenue.
It is expected that one Chief Marketing Officer and three Marketing Managers will suffice to carry the Software X project forward, given the need to sign up less than two dozen clients in the first year and the limited number of market segments that need to be addressed.
The principal financial control strategy for the Software X program lies in ensuring a stable revenue stream. This means locking in all clients for one-year subscriptions, securing lead reports with one-use-only locks, and limiting output per month to no more than 20% of their annual license total.
|First-Year profit and loss projection (in $ 000)|
|Software X||Fiscal Year Begins||January 2010|
|Total Revenue (Sales)||225,000||42,500|
|Cost of Sales|
|Total Cost of Sales||12,000||12,000|
|Supplies (office and operating)||96||96|
|Repairs and maintenance||84||84|
|Car, delivery and travel||600||600|
|Accounting and legal||120||120|
|Taxes (real estate, etc.)||0||0|
|Amortization of R&D||12,000||12,000|
- Accurate Info Solution (2005) Enterprise Resource Planning : Introduction.
- Business Growth Network Entrepreneur (2008) Product live [sic] cycle.
- Desmond, J. P. (2008) Innovation alive and well. [Internet], The Software 500 Feature, Software Magazine.
- Kotler, P. & Keller, K. L. (2008) Marketing management. 13th ed. Upper Saddle River, NJ: Pearson/Prentice Hall.
- Manufacturer-Supplier.com (n.d.) Searching for ERP information?
- Montalbano, E. (2009) Gartner: Global software budgets will grow next year. [Internet], IDG News Service.
- Pettey, C. & Stevens, H. (2009) Gartner survey points to positive software spending in 2010.
- Pettey, C. (2009) Gartner says worldwide business intelligence platform market grew 13 percent in 2007; industry experienced heavy consolidation and slowing revenue growth in North America.
- SAP (2009) Facts and figures.
- Software Magazine (2009) Business intelligence. [Internet]
- Vesset, D. & McDonough, B. (2006) Worldwide business intelligence tools: 2005 vendor shares. Framingham, MA: IDC