The wild days of software have come to an end

It was easy to start a software company 15 years ago. There was a huge transformation from desktop to the cloud and that created an opportunity for any vendor to establish their place at the table offering cloud-based software. But it’s now more difficult to create new products that are significant and compete because we have mega-vendors in the cloud. The days of being able to bring a really significant product to market are over.

Fifteen years ago starting a software company was easy for a range of reasons. The web was just beginning which made it easier to start a company. There were mega-vendors but they weren't very sophisticated at marketing on the web so you could start a business and market yourself via the web.

In our space, there also wasn't a lot of competition for web-based analytic software so we didn’t need to have as many features in our software to begin with. I’ve heard similar comments from others like the founders of Atlassian. They’ve said that if they had to start their business today the startup costs would be so much greater because the requirements for their software are much higher. People buying software today are far more mature, and they expect far more from a software out of a box than they did 15 years ago. 

Innovation is vertical, today

While the really big-ticket items in the cloud have been built, these are all horizontal products that try to be all things to all people. Now innovation is very focused. It’s about finding unique and interesting solutions to very specific problems. This means new software vendors have to be more focused than they were in the past - you actually have to get it right to succeed. You have to understand one particular problem deeply and create a solution that solves that problem. This will be the biggest challenge for software vendors in the future

We’re already seeing quite a number of consultancies that are building very specific out of a box analytics solutions for particular problems, from procurement to health care analytics. These are designed to augment products in the cloud. For example, I recently saw a product that an ex-CFO had built that provides CFO reporting from Xero out of the box. It has the ability to extract the data out of Xero, package it up and sell it as a ready-made solution. 

This taps into a gap in the market. People want to buy ready-made, they don't want to plug everything together themselves or do the system integration. This is also why low code and no code product sets are on the rise. They enable ‘citizen developers’ to augment their existing systems and fill gaps in those products. 

The future for software vendors is looking for opportunities and value that mega-vendors simply can't create with a generic horizontal product. More niche products will be developed and brought to market. The economics of this means that billion-dollar businesses won’t be created but organizations can still be viable because within their niche there will be a big enough market for them. That's where the money of the future is for software vendors.