The electronic distribution revolution."Revolution" is a word that's badly overused by software marketers. But this time we suspect it's exactly the right way to describe the long-term impact of electronic software distribution (ESD (1) (Electronic Software Distribution) Distributing new software and upgrades via the network rather than individual installations on each machine. See ESL. ) over the Internet. Marketing channels, competitive positioning, pricing models, upgrade cycles, product design, customer relationships--all change dramatically in a world where the Internet becomes a primary distribution channel. But when does this new wired world become a reality? Surprisingly soon, judging from a Soft*letter ESD survey that we've just finished tabulating. The survey--which provides a look at electronic distribution practices and expectations among 310 PC software companies--suggests that ESD channels are on the verge On the Verge (or The Geography of Yearning) is a play written by Eric Overmyer. It makes extensive use of esoteric language and pop culture references from the late nineteenth century to 1955. of classic hockey-stick growth. Software companies of all sizes (and in all major markets) have already begun to use the Internet regularly for distributing demo and trial versions, for full product downloads, and for Upgrading and patching. Moreover, despite some non-trivial infrastructure issues, there seems to be widespread agreement that electronic distribution will generate a major share of industry revenues within the next two to five years. What's striking about this new enthusiasm for electronic distribution is that so many ESD schemes have crashed and burned in the past, rejected by skeptical publishers and customers. Now suddenly the wind has shifted: Almost every major publisher (and many small ones) are paying attention Noun 1. paying attention - paying particular notice (as to children or helpless people); "his attentiveness to her wishes"; "he spends without heed to the consequences" attentiveness, heed, regard to "virtual stores," electronic reseller An organization that sells hardware and software to the general public. Resellers purchase products from software publishers and hardware manufacturers. relationships, digital cash, software component models, and electronic commerce systems. If there's any skepticism these days, it's publishers in our survey have relationships with ESD resellers, 50 more publishers --more than double the current level--expect to work with them in the coming year. WHAT ABOUT DISKS AND MANUALS? Software is an intangible commodity, but buyers often expect to receive some physical product in the form of disks and manuals. This seems to be an area where there is still little consensus: 24% of our respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. provide disks and manuals free upon request, 45% charge an additional fee, 20% don't offer separate disks and manuals, and 11% rely on a variety of other approaches. Electronic distribution is supposed to eliminate production costs, so it's no wonder that customers are sometimes baffled and annoyed when they discover the cost savings has mysteriously evaporated evaporated reduced in volume by evaporation; concentrated to a denser form. . When publishers do charge for disks and manuals, the cost to the end user --including shipping & handling--varies considerably. But there is usually a rough relationship to the cost of the software itself:
Cost of Disks & Manuals When Ordered Separately
Median Lowest Highest
Product price
under $50 $15 $4 $55
$51 - $150 $17 $4 $65
$151 - $600 $30 $10 $120
Over $600 $59 $10 $120
All titles $25 $4 $120
A FEW OBSTACLES TO OVERCOME What's holding back wider implementation of electronic distribution? Our survey respondents--who all have at least some hands-on experience with ESD implementation--identified several short-term obstacles that have to be overcome for electronic distribution to become a major factor in the software marketplace. * Bandwidth limitation: By far the highest-ranked problem (239 mentions) is the physical limitation of low-speed modem and Internet connections. Even with ISDN ISDN in full Integrated Services Digital Network Digital telecommunications network that operates over standard copper telephone wires or other media. lines--which are far from universal--a typical desktop application can take several hours to download. The bandwidth constraint Constraint A restriction on the natural degrees of freedom of a system. If n and m are the numbers of the natural and actual degrees of freedom, the difference n - m is the number of constraints. is less acute for demos, small applets and components, but the revenue potential for miniproducts is also much less than for full versions. * Customer attitudes: The second highest-ranked ESD obstacle turns out to be customer preference for physical product (206 mentions). Especially in consumer markets, software has evolved into a classic "packaged goods Noun 1. packaged goods - groceries that are packaged for sale foodstuff, grocery - (usually plural) consumer goods sold by a grocer plural, plural form - the form of a word that is used to denote more than one " business, with strong emphasis on the look and feel of the box itself. Although large corporate buyers increasingly prefer to buy software licenses In computing, software that is copyrighted and licensed under a software license is done under a variety of licensing schemes. For end-users there are proprietary licenses and there are free software licenses, and there are proprietary Within these schemes are further classifications. without physical packaging, consumers may not be as quick to see value in a completely intangible product. Publishers who use ESD channels will have to overcome "the customer attitude that online content should be free," one survey respondent In Equity practice, the party who answers a bill or other proceeding in equity. The party against whom an appeal or motion, an application for a court order, is instituted and who is required to answer in order to protect his or her interests. noted. License management and piracy piracy, robbery committed or attempted on the high seas. It is distinguished from privateering in that the pirate holds no commission from and receives the protection of no nation but usually attacks vessels of all nations. : Software has always been easy to copy, but a good many ESD pioneers are concerned about how to prevent widespread online piracy (172 mentions). Even though publishers of low-cost consumer and game titles usually seem to suffer more from piracy, our data suggests that the piracy issue is actually slightly more urgent at the high-end of the price spectrum. Pricing: Pricing concerns are an even less pressing ESD problem (96 mentions), though many publishers seem to be wrestling with several pricing-related issues--in particular, how to set a street-price equivalent for titles sold through ESD channels, and how to structure an acceptable discount structure for electronic resellers. A related issue-the lack of a universally accepted payment system for online transactions--also showed up as an obstacle. "Nothing really works right now," said one respondent. Delivery systems: The cost of setting up an ESD fulfillment ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. system (61 mentions) is not trivial TRIVIAL. Of small importance. It is a rule in equity that a demurrer will lie to a bill on the ground of the triviality of the matter in dispute, as being below the dignity of the court. 4 Bouv. Inst. n. 4237. See Hopk. R. 112; 4 John. Ch. 183; 4 Paige, 364. , but it's not perceived as an urgent problem for many publishers, perhaps because publishers generally expect to rely on outsourcers for ESD transaction support. Resellers: The least critical obstacle to the success of ESD, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. publishers in our survey, is the current lack of high-volume electronic resellers (57 mentions). It's not clear whether this response level means that publishers plan to cut resellers out of the ESD loop completely, or that they believe that Egghead, CompUSA, and other chains will eventually provide electronic shopping options. In any case, resellers aren't perceived as a bottleneck A lessening of throughput. It often refers to networks that are overloaded, which is caused by the inability of the hardware and transmission lines to support the traffic. It can also refer to a mismatch inside the computer where slower-speed peripheral buses and devices prevent the CPU for ESD implementation. Other issues: Among the "other" ESD obstacles that publishers suggested were customers who lack modems and new hardware (five mentions), transaction security and credit card fraud Credit card fraud is a wide-ranging term for theft and fraud committed using a credit card or any similar payment mechanism as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account. (four mentions), and the E-data patent litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. (three mentions). THE DEMOGRAPHICS The attributes of people in a particular geographic area. Used for marketing purposes, population, ethnic origins, religion, spoken language, income and age range are examples of demographic data. OF ELECTRONIC DISTRIBUTION The Soft*letter Electronic Distribution Survey has been compiled from data supplied by 310 PC software developers and publishers who filled out questionnaires mailed during August 1996. The respondents, all of whom currently use electronic channels for some form of software distribution, represent a typical cross-section of the software industry in terms of company size, application category, and product price points. COMPANY SIZE: 277 companies identified their current annual sales range. Of these, 30% (83 firms) generate sales under $1 million, 27% (74 firms) are in the $1-$5 million range, 14% (39 firms) are the $5-$10 million range, and 29% (81 firms) have sales greater than $10 million. Among the survey respondents were 38 that rank in the 1996 Soft*letter 100 and five that rank among the industry's ten largest companies. (This mix of companies by size, incidentally, closely matches the response profile we have seen in most of our other recent industry surveys.) APPLICATION CATEGORY: ESD companies are well represented in all the major software application categories. Respondents were asked to classify clas·si·fy tr.v. clas·si·fied, clas·si·fy·ing, clas·si·fies 1. To arrange or organize according to class or category. 2. To designate (a document, for example) as confidential, secret, or top secret. themselves according to their "most popular title":
General Business 63 respondents
Consumer/Entertainment 41 "
Education 31 "
Utility 28 "
System-Level 6 "
Programming Tool/Language 27 "
Communications/Networking/Internet 39 "
Vertical/Industry- or Job-Specific 51 "
Accounting/Finance/Tax 19 "
PRICE CATEGORY: ESD companies also sell software across a broad range of price points. Based on the list price of each company's most popular title (which 283 companies provided), 27% (76 firms) sell products with a list price of $50 or less, 24% (68 firms) sell in the $51-$150 range, 25% (72 firms) sell in the $151-$600 range, and 24% (67 firms) sell products with a list price above $600. |
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