Sunday March 19, 2006

Sun was NBC. Now it's HBO.

An old style commercial television network, like NBC, is constantly in search of the next hit show, since commercial time on a  hit show can be sold for very high fees. A traditional software company works the same way, always searching for the next hit product that can be sold at a premium. At the same time, there is a terror of spending a fortune on developing a new product that doesn't sell. New product ideas get scrutinized to the Nth degree, and product managers write volumes of analysis to predict how much new revenue can be expected from the sale of a new product. Since there is no way to accurately predict the success of a new product, these analyses are a waste of time, but they provided me with a nice living over the years, until I came to Sun, which operates more like HBO.

Subscription based networks, like HBO, operate on a different model. Since their shows carry no advertising, producing hits is not important. All that counts for HBO is that the customers keep paying $9.99 a month. Thus, what counts is not a hit, but an overall reputation for quality. If you think that by subscribing to HBO you'll always have something interesting to watch, you keep paying $9.99. So too with subscription-based software pricing. When you start paying $100 per employee per year, you begin to think more in terms of the overall reliability, innovation and level of service of the vendor, and less in terms of particular products and features. Offering new features is still important, but the importance is in producing that critical reputation for quality and innovation, not in the monetary value of any particular feature. So product managers like me will still have a job to do in figuring out what features to provide, but (I hope) we won't have write those revenue-estimate fairy tales any more.