Between the Magic Quadrant and the Bermuda Triangle

Software vendors are always proud to communicate evaluations from research companies that indicate how good their products are. These ratings are to the software development tools market what the gastronomic guides are for restaurants. You always wonder what is their exact credibility, as relationships between analysts and vendors are not always neutral. You have also witness a lot of “pilot projects” from inside “technology staff” failing to discover how a product really impacts the work of developers and know that evaluating products out of a real context is difficult. Anyway, there are still a lot of people that will use them as a base for their purchase decision. A good position in these evaluations is something sought after, especially by smaller and young companies, as it could be a driver for their future growth. Technology is however only one component of the success equation, as we know that the best products are not always inside the most successful companies. No I didn’t say Microsoft ;o)

Even if the role of these external assessments is still important for the software development market, the rules have certainly changed these recent years. The software tool eco-system has evolved and the relationships between software tools vendors and developers have been transformed, both in their form and in their content.

The investments needed to launch a new software tool have decreased as a consequence of the diminution of the solid content of software tools. You are no more obliged to build a physical distribution network and to manufacture software CDs, boxes and documentation manuals. Everything can be available on-line from a web site and the vendor sells directly to the buyer, everywhere on the world. This model could be seen for instance in the Scrum project management software market where operates tinyPM, one of our sponsor. I remember interviewing in 1993 a manager of Cadre Technologies, a disappeared CASE vendor of the last century, for one of the first paper issue of Methods & Tools. He told me that the barriers to growth for a software vendor were high, because for every dollar you spend to develop a product, you needed ten dollars to sell it. I think that the relative marketing/product cost ratio has notably decreased, moreover if you target a market of small and mid-size companies. You can now promote for free your product to developers in a lot of blogs, forums and community sites. Things could be a little bit different if you want to sell to larger companies where you need more direct personal contact, but I think that the trend to less human contact will continue.

A second major change in the software market rules, is that some vendors are not selling software anymore, but only the services provided by the software. Amazon and other Web or Cloud-based tools vendors are not selling database software, but the service of using a database to store and retrieve your data, located somewhere on the net. The advantage of this solution is that you don’t have to install and manage your tools and your costs are directly related to your needs and activity. You become also more dependent on your supplier and this could not be without risks. The recent end of Coghead activities is giving its customers only a short delay to find another solution. On the contrary, if your traditional supplier has a problem, its software would continue to run on your machines for some time, leaving you more time for transition.

A third major difference is the growth of software-less software companies. By this I mean that companies like Red Hat or Spring Source do not sell software tools. They sell mainly the support and the consulting that goes with open source tools. This is not surprising if you know that the majority of IBM’s revenues come from its service division. On the other side, there is also the success of Atlassian that only sells software. Buyers do not fear that the quality of this open source software is inferior to commercial products, as it is true that the development of these tools is mostly as professional as commercial software in its recent evolution.

What will be the impact of the current economic crisis on the software tools market? Do these new market rules change something? I think that the new “nimble” vendors and their low-cost Internet models could have more chances to survive longer. The “no license cost” aspect of open source software could event lure people to switch from commercial products towards solutions offered by open source companies. However, contrarily to former slowdown periods where larger companies will buy smaller one to grab some new customers or technology, we should see fewer acquisitions, as it will be more difficult to have credit and less incentive to buy small companies in fragmented markets. The recent failure of Agitar and Coghead was followed by migration plans offered by competitors to their customers. McCabe then acquired Agitar. Larger acquisitions or mergers, like that was that is rumored of Sun by IBM, will be more likely.