Tuesday, March 07, 2006

What you can learn by looking at "the other" 84% of software functionality

At IDC's Directions Conference last week, a presenter stated that customers use ~16% of application functionality. I can't find the source for the number, but directionally it seems plausible. If true, 84% of application functionality sits idle. Sometimes simple facts can put a lot of things into perspective.

1) Companies can do a few things very well (in fact 16% of things) and still retain customers. That is probably why there are 23K+ software companies in the US.

2) If you want to find the innovators in the industry, R&D spend is likely not a good indicator because a portion of it is focused on the unused 84%. For innovators, find the companies with the best market facing product management groups.

3) Good Product Management isn't being effectively utilized in much of the software industry. If it was, how would the other 84% even get built?

4) Customer demand for a la carte pricing is driven by their desire not to pay for the 84%.

5) The market is responding through a host of innovations that let customers choose only those features it wants ... Sale Force's appexchange, SOA, Open source, etc. Note that these aren't functionality innovations, but ecosystem and distribution innovations.

At the heart, this issue is about innovation. I think a lot of software companies think they drive innovation; that is what they think the other 84% of functionality is - unused innovation. In some cases they might be right and a big payoff ensues. But for the most part, responding to market needs is safer than trying to drive breakthrough innovation. The balancing act between the two is a key leadership function and one that companies continue to struggle with. Jeff Nolan has some thoughts on that here.

2 comments:

Mark Crofton said...

Does 84% really sit idle? or might my 16% be different than your 16%?

Another explanation might be that clients use software in a myriad of different ways and that the overlap is minimal. I'm using very little of the software, so are you, so is the other guy, but overall most functionality gets used?

I doubt this pushes the number anywhere near 100%, but surely much higher then only 16% of the code base being used.

Rob said...

Good question. I agree non-overlapping use would push the 16% higher when looked at across the entire customer base. That said, I think that processes have become more similar between companies in the last ten years for a number of reasons (standard education, consultants, fungible workforce, ecosystem requirements, etc) meaning that different companies do things in similar ways and probably rely on much of the same functionality. Not sure what this adjusted percentage would be or how IDC calculated the original number.