Monday, March 11, 2002

Andreeson grows up In this Economist article about the new, grown up Marc Andreeson, the Internet poster child says
The trouble with selling software is that vendors end up in an adversarial relationship with their customers. The customers know that the vendor needs to meet its quarterly sales target, and is often dependent on a few large sales to do so. The result is a frenzy of last-minute negotiation and price-cutting at the end of each quarter
He gets it quite wrong. Any public firm trying to meet quarterly analyst targets has the above problem. Big companies like GE dip into secret stashes so they can hit earnings to the penny. Tech stocks' value comes from revenue growth more than profits, so they need to show rapidly increasing shipments. Without big cash reserves to dip into this means they stuff the channel at the end of every quarter and give big discounts to the customers so they can make earnings.

The adversarial relationship comes afterwards once the buyer is locked into a single vendor. The software company can now squeeze money out of the buyer at will through pointless new features, draconian licensing laws, and forced upgrades (a la Microsoft or Oracle). While the buyer might have forced enough concessions by getting an initial deep discount to make the eventual contract value neutral (i.e. no one makes money on it), it's not a good environment to create quality software.


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