Thursday, October 25, 2007

Running with an Anchor

“In a time of drastic change it is the learners who inherit the future. The learned usually find themselves equipped to live in a world that no longer exists.”
Eric Hoffer quotes (American Writer, 1902-1983)

In a software company with mature and aging products, selling into competitive and saturated markets where new unit growth is restricted to partnering and integrations, the once heralded flag ship applications, the cash cows, can become anchors to growth. These companies also become favorable targets for venture captial firms and competitive acquisitions who value the cash flow of an existing customer base but also understand the weight of the legacy technology. They understand that the investment needed to rewrite or otherwise reinvent the cash cows in modern technologies is out of the reach of the companies financial capabilities, to survive they have to sell.

The pace of technological change increases with time, and the time between a technology being deprecated and then unsupported is becoming too short for slow moving companies to respond effectively. Software companies that have not incrementally invested to keep their products up to date may find themselves isolated on an island at high tide, with the bridge washed out and no where to go.

In addition, technology refresh projects are difficult to justify, frequently there are no visible differences between the old technology and the new and they seldomly generate any new revenue, so all you are left with is cost. Justifications that are sound and tangible only to the engineers, such as upgrading a vendors technology because it will be unsupported by the end of the year, fall on deaf ears.

Cash cows can become anchors when the industry trends dictate that an application be capable of some capability that is only available in a modern technology. Software as a Service (SAS) or Service Oriented Architectures (SOA) is an example. In a saturated market, where new units are flat, partnerships become the focus of the business development activity.

When the partners products have been developed in modern technologies, which is usually the case for innovations that happen around the cash cow as it sits stale in an continually growing and changing market, the proposal for integrating is based on modern technologies and practices. To have the cash cow act as a service or engine in an overall workflow or solution may be impossible since the cash cow has been written in a closed architecture. There are no integration API's, there is a proprietary data model, the business model, ui and controling logic are coupled to each other, the application is an island. So the partner will most likely walk away. New business development activities become useless as there are partners interested but none of them are interested in a clunky integration.

Now the cash cow is an anchor, the weight of neglect and outdated technology and architecture prevent it from evolving into new markets and opportunities. The company finds itself ill equipped to live in the new world, with it's cash cow still perfectly equipped to dominate in a world that no longer exists.

No comments: