type="text/javascript">
Zipfluence

Do'in the numbers while being disrupted by a cacophony of Angry Birds or, why Desktop Dollars = Mobile Pennies

Summer 2013

I noticed that both Excel and Numbers are now free for those choosing to invest in a new Surface RT or iPad. The flagship of the PC revolution. The spreadsheet is now a freebie, if you buy the slab.

Now Numbers was never a best seller in the disruptive world of the iOS but Angry Birds was.

So here's a bonus question for all you product managers out there.

Which product made more money in its first year: Lotus123 or Angry Birds?

Careful. Consider your answer well. Angry Birds was the flagship of the smartphone disruption.

Think iPhone. Think Angry Birds.

Lotus 123 on the other hand emerged 30 years ago. It wasn't the first spreadsheet. It wasn't the product that sold a million Apples [Think VisiCalc] but it was the product that help sell millions of PCs.

Having said that Apple sold more iPhones in its first quarter than IBM sold PCs in 1983.

Do you have your answer locked in?

Are we thinking Angry Birds or Lotus123?

Games n' phones or Spreadsheets and PCs?

Kids or Accountants? Come to think of it, is there are difference?

Have you factored in the network effect? The power of the network narrative. That special formula that makes life on the network so much more than more?

Are you thinking Angry Birds?

Well if you are then I am sorry you are wrong.

Market estimates put the first year sales of Angry Birds in 2010 at around $10 Million.

The boys who invented Lotus 123 forecasted they'd sell a whopping $1 Million back in 1982. They achieved $54 Million. Adjust that for inflation and you get $130 Million. Or, over 10x the value of the Angry Birds success story.

The primary reason being of course, even though the potential market was just 3 million PCs and with no network to facilitate distribution, Lotus123 sold for $495 per copy. Today the average price of an iApp in the App Store is just $0.10.

The vast majority of Apps are free. The store is subject to the long tail of network economics. But even the success stories, when placed in an historical context, just aren't that successful.

The software industry is suffering from the same Analogue Dollars = Digital Pennies, or rather Desktop Dollars = Mobile Pennies, problem as the mass media.

It is just that, by and large, the industry is so euphoric in its outlook for all things smart, it just hasn't woken up to the new networked reality yet.

So here is a quick mash-up of the historical data to provide a reality check to things have never been better siren call of the furturists and venture capitalists.

First the mash up of the growth in Personal Computers vs. the average price of Personal computers and the software we installed on them.

First thing you'll notice is the fall in the price of software mirrors the fall in the price of the hardware.

As the price of hardware fell so did the price of software. But the price ratio remained the same.

Historically the ratio of software to hardware pricing was 15%. Today it still is.

This means the SaaS vendor would have to charge $2.14 per month over the life of a 3 year hardware lease to deliver a similar return to the traditional COTS vendor.

Switch across to the mobile app economy and you'll find a very different story. What as once 15% is now averages out at 0.03%.

Put another way, in the Dos/Windows economy the average user spent 15 cents on each new software licence for every dollar they spent their hardware, while the mobile savvy users spends only 3 cents on each new app for every $100 they spend on hardware.

Further proof, if any was needed, that Desktop Dollars = Mobile Pennies.

The new market reality for software developers is there has never been more customers but prices have never been this low.

And it is something of a paradox when the accepted theory of the network economy is more = more.

i.e. The more you are connected the more value is generated.

In the end the answer to this paradox is very simple.

Media has been unbundled by the network. And by that I mean what once was sold as a wholesale product (Think Newspaper, Magazine or Music Album) is now sold as fragments (Think pages and songs). So too with software. Software is under going the same unbundling. What was sold as a wholesale bundle of function points (Think: COTS software) is now being unbundled and sold off as function points and limited functionality (Think: API's and Apps). The reason being of course, when it comes to the long wave of the product cycle the spreadsheet and the word processor, 30 to 40 years on, is looking very much like end of cycle, and is under the types of market pressures one would expect of a mature market.

And this observation speaks to the heart of the question: just what is innovation today?

Is the inevitable fragmentation of the 1970's PC product set really a new wave of "game changing" innovation or just the latest generation of youngsters feeding off the aging, admittedly bloated, carcass of a golden age of innovation long since past?

A question for all those futurists out there to ponder perhaps?

Copyright 2013 Digital Partners Pty Limited. All Rights Reserved.