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The Business of Software: What Every Manager, Programmer, and Entrepreneur Must Know to Thrive and Survive in Good Times and Bad Hardcover – March 15, 2004


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Product Details

  • Hardcover: 352 pages
  • Publisher: Free Press (March 15, 2004)
  • Language: English
  • ISBN-10: 074321580X
  • ISBN-13: 978-0743215800
  • Product Dimensions: 6 x 1.1 x 9 inches
  • Shipping Weight: 1.3 pounds (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (35 customer reviews)
  • Amazon Best Sellers Rank: #908,088 in Books (See Top 100 in Books)

Editorial Reviews

From Publishers Weekly

Cusumano, a professor at MIT's Sloan School of Management and coauthor of Microsoft Secrets, offers a comprehensive overview of the software business and how the right approach is key to the success of technology companies. Cusumano first identifies the key distinction between software and other businesses. In fact, he believes it is unlike every other business because software doesn't have one purpose but becomes whatever function it is handling for a particular customer or company. As a result, software companies must sell both products and services, according to the author. The two typical ways software companies operate is by getting the lion's share of revenues from new product sales or via IT consulting. The third way is what the author calls "hybrid solutions companies—software firms that have some new product sales, but derive as much as 80% of their revenues from services and "maintenance." However, what's essential for company success in today's rapidly changing technological marketplace is having sufficient flexibility to change to meet customer needs. Citing both real companies including IBM, Netscape, etc., along with academic studies, Cusumano describes the changing face of the software industry over the past two decades. The writing is coherent and, given the somewhat technical subject matter, surprisingly graspable even for technophobes. Still, this is a niche book, apt to appeal to people involved in the world of software, rather than a general business audience.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

About the Author

Michael A. Cusumano is the Sloan Management Review Distinguished Professor at the MIT Sloan School of Management and one of the world's leading authorities on software development and the management of software companies. He is the author or coauthor of seven other books, including the bestsellers Microsoft Secrets and Competing on Internet Time, as well as Japan's Software Factories and most recently Platform Leadership.

More About the Author

Michael A. Cusumano is the Sloan Management Review Distinguished Professor of Management at the MIT Sloan School of Management, with a joint appointment in MIT's Engineering Systems Division. His research focuses on technology management and strategy, especially in the software business. He received an undergraduate degree from Princeton University and a Ph.D. from Harvard University. He also completed a postdoctoral fellowship in production and operations management at the Harvard Business School. He has been a Fulbright Fellow and a Japan Foundation Fellow at the University of Tokyo. In 2009, he delivered the 13th annual Clarendon Lectures in Management Studies at Oxford University and was named one of the most influential people in technology and IT by Silicon.com. Professor Cusumano is a director of a leading Indian IT services company, Patni Computer Systems (NYSE: PTI, www.patni.com), and of an interactive voice communications provider, Eliza Corporation (www.elizacorporation.com). He is also an advisor to FixStars Corp. (www.fixstars.com), which builds high-performance computing applications for clusters of Sony Playstation consoles and other multi-core processor blade servers; and Buzzient (www.buzzient.com), a social media analytics and integration firm. He is the author or co-author of 8 books, including The Business of Software (2004), Platform Leadership (2002), Competing on Internet Time (1998), and Microsoft Secrets (1995).

Customer Reviews

Well written, detailed, and insightful, best describe this book.
Clark V. Valberg
If you're even thinking of creating a software startup, I highly recommend you read The Business of Software as soon as possible.
Michael Davis
"A products company should have well over half of its revenues coming from new sales of software products."
Golden Lion

Most Helpful Customer Reviews

39 of 40 people found the following review helpful By Michael Davis on April 4, 2005
Format: Hardcover
---> To swing for the fence, entrepreneurs must avoid the shark-infested red water and sail into the deep blue sea.

If you're even thinking of creating a software startup, I highly recommend you read The Business of Software as soon as possible. Doing so will save you much pain and suffering from senseless mistakes. When there is such a large body of existing knowledge, there is no cause for trial and error mentality. There's plenty of other opportunities for trailblazing. Read this book as a bare minimum before starting your venture.

Cusumano, offers an in depth study of what it takes to succeed in software. Of particular value are critical questions to contemplate:

1) Do you want to be mainly a Products company, or a Services company?

2) Do you want to sell to Individuals, or Enterprises | Mass market, or Niche market?

3) How horizontal (broad) or vertical (specialized)is your product or service?

4) Can you generate a recurring revenue stream that will endure both good and bad times?

5) Will you target mainstream customers, or do you have a plan to avoid the chasm?

6) Do you plan on being a Leader, Follower, or Complementor?

7) What kind of character do you want your company to have?
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11 of 12 people found the following review helpful By Jim on March 20, 2004
Format: Hardcover
Cusumano's book is a clear and straighforward read into the basic issues that any software company should consider at their inception and as they mature.
Cusumano lays out the basic relationships between products and service very clearly - and he explores the pitfalls involved with good detail from the companies that he has advised. In this early portion of the book he also offers some very useful metrics to help provide financial sanity checks. There's an interesting "historical" chapter that follows the development of the industry, and then he delves into SW development best practices - which appears to be his particular forte. There's also a good chapter on the start-up phase sprinkled with sage advise.
My copy is full of margin notes and has already been transformed into a powerpoint presentation to share with our team.
All in all I found the book gave me a solid foundation from which to consider the SW biz. It's too easy to lose your sense of direction in this industry. Cusumano's book is like a glowing compass that illuminates the common sense dynamics driving this business. Enlightening, useful, well grounded in examples - and well written.
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11 of 13 people found the following review helpful By David Le Strat on July 1, 2005
Format: Hardcover
This review is also available on my blog: <a href="[...]">DLS Thoughts</a>.

I just finished reading "The Business of Software" from Michael Cusumano. Overall a well written book on the fundamentals of the software industry. The book focuses essentially on the analysis of the business model for a software company. There isn't really anything striking new in Cusumano's analysis of software companies' business model, but the author does a good job in outlining the choices offered to software companies and how their business model will have to mature as companies and technologies mature.

Essentially, there are 3 choices for a software company:

* A pure product play (Some would argue that with the advance of open source and the broad adoption that it has been getting lately, that pure plays are getting much more difficult).

* A mix of products and services.

* A pure service play.

I found very interesting Cusumano's analysis of a typical enterprise software company revenue over the course of a five year business lifecycle. For every 1 dollar of product license fees, $2.15 dollars can be derived from services and maintenance. That's more than 70% of the cumulated company revenue. In many cases, services on sold products end up being a life insurance against bad economic times. This brings some prospective to the Professional Open Source buzz. After all, a typical software company already ends up generating 70% of revenues from maintenance and services over a 5 year lifecycle. When put in this context, the changes of business model though important, appear less radical that one may have initially perceived.
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28 of 37 people found the following review helpful By Sabaziotatos on April 12, 2005
Format: Hardcover
I found little original material in this book.

Chapters 1-3 cover many issues (products vs. services, horizontal vs. vertical markets, enterprise vs. consumer customers, platform vs. complementor, focus on customer solutions rather than focus on bleeding edge technology, commercial vs. open-source, too many software companies,) that are well known to industry insiders. Is it news that product-based software companies generate gross margins in excess of 90% or that many of these same companies (for example, those without defensible intellectual property or a dominant market share) eventually deteriorate into service companies with thinner margins? Is it news that some software companies sell software to consumers, whereas others sell software to enterprises? For such insights the good professor pulls down the big consulting bucks and is seated on Boards of Directors?

Also, in Chapter 3 Professor Cusumano implies that Microsoft makes a practice of building incompatibilities into new software releases for financial gain: "In some cases, software companies can practically force consumers and enterprises to upgrade their software ... as they build in incompatibilities with older file formats or at least make old software programs difficult to use with new versions of the same programs. Microsoft did this brilliantly ..." In my opinion, Microsoft has done a better job than just about any other software company at ensuring that new versions of software are compatible with old versions. Consider, as just one example, the PINVOKE interoperability mechanism found in .NET, which supports invocation of old unmanaged code from the .NET managed environment (backwards compatibility) as well as invocation of new managed .NET code from an unmanaged environment (forward compatibility).
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