The Business of Software is an excellent read and growth tool for seasoned practitioners. Organized in three major sections it explores:

(1) Product vs. services vs. hybrid software organizations' strengths and weaknesses, and how they can change over time (think about your company...!).

(2) Software development strategies and outcomes. At first glance, this section seems less relevant - until you find yourself defending why your latest release is waaaaay late... There are some excellent ideas here that can apply to the creation and roll-out of "core" demos.

(3) Entrepreneurship - successes, failures, and ongoing question marks - the author explores what key factors contribute to the end result. The case studies at the end of this section can serve as virtual mirrors onto one's own organization.

This is good and useful reading, particularly for those who seek to move upwards in their organizations or are contemplating joining a new or emerging company.

The most useful sections for technology marketers are in Chapter 2 about strategy, where Cusumano asks provocative questions that will give you a new way of looking at your products, services and company direction.

Also useful is Chapter 4 on best practices, which will give you some benchmarks for comparing your operations and development activities to industry leaders.

Much of the book focuses on presenting detailed analysis of the rise and fall of companies during the technology boom and bust in recent years. The stories can be interesting, but it seems to me that information is getting dated given the challenges that face technology companies today.

I read Cusumano's book recently and was underwhelmed. It's an OK overview of the software business, but I certainly wouldn't put it ahead of a book like, "Four Steps to the Epiphany" by Steven Gary Blank. My sense is that if you are motivated sufficiently to buy a book like this, you proably already know this stuff.

In many ways this is the book I had been trying to find for years. There are many good books on starting up companies, and high-tech companies in particular but not much good literature specifically about the software industry as a whole. This books focuses on software as a business and how the industry really works.

I am managing a start-up software business and the information in this book is invaluable as it really changed my thinking about what the company is, how it operates, and what it takes to become a success.

If you come from a technical background, and starting or thinking of starting a business, then this book is a must-read.

This review is also available on my blog: DLS Thoughts.

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. For those doubtful of the viability of the open source business model, I think we get some empirical data making the case for it right there.

Cusumano goes on with his analysis and show how as companies mature, they tend to move towards more of a services model and provides excellent data to illustrate his argument. As we look at the growth of companies like IBM and Oracle, more and more of their revenues are coming from services. This clearly justifies their strategy behind open source where they can capitalize on their strength in services while maximizing the use of their R&D resources.

Finally, I particularly enjoyed Cusumamo's analysis of the factors that make software startup companies successful, with great examples to illustrate his point. Cusumano basically identifies 8 key criteria for assessing software start ups:

1. The quality of the management team.
2. Whether the market is attractive and has strong potential.
3. How compelling is the offering?
4. How much interest is the offering getting from customers?
5. Is the company credible?
6. What is the business model?
7. How flexible is the management team?
8. What is the payoff potential?

A great list that applies to most business activity.

This is a good book. I recommend it for anyone interested in the software business. When it comes to the software industry, there is a natural tendency to focus on the importance of product, so I particuarly liked the author's emphasis on the importance of management.

A good book on the business, operations, and strategies of software companies, but some of the more sleazy aspects of the industry go undiscussed by Professor Cusumano. If you want to learn more about the dark side of the software business, read on.

I recall a lunch I had a few years ago with the CEO of a software company where I was working as a software engineer. Over the preceding weeks, I had had several discussions with my fellow employees, both engineers and salespeople. Our customers were clamoring for a particular feature. Our software had a related feature, but not the one our customers wanted. I had been arguing that it was unscrupulous to represent to our customers that the feature we had was the one they wanted. My fellow employees held the opposite view.

Our CEO took me to lunch to see if he could "overcome my misgivings." He was in his late twenties, and this was his first experience in an executive position. I remember saying to him: "We can't tell them it's the same feature. That's a lie." He looked at me with a relaxed expression and replied: "But don't you understand? Everyone in this industry lies."

Years later, this lunch still epitomizes for me the spirit of the enterprise software industry. The customer is red meat. The only thing that's important is making sales numbers. Salespeople do not care what they have to say to make a sale; after all, they are "product evangelists." If the customer's problem is driving a nail and the salesperson is selling a screwdriver, the salesperson will bring in a "pre-sales engineer" to put together a "proof of concept" showing how nails can be driven with a screwdriver. Salespeople tout the performance of their software as measured by suites of "benchmark tests," neglecting to mention that the benchmarks have been carefully tailored to avoid revealing the weaknesses of the company's product. But, everyone does it.

The quality of software is abysmal. If you were to buy a CD or a book that had been as shoddily produced, you would demand a refund. Unless, of course, it were a computer book, for which it has become acceptable, almost de rigueur, to be filled with misprints, mismatched figures and captions, grammatical errors, sentences that start one way and end another, all signs that the software industry not only is unable to attract employees with adequate editorial, language, and technical skills, but also just doesn't care.

Support is just one more way to extract long term revenue from the customer. Support people are usually the least skilled on the technical staff and sometimes speak only broken English. They often end up addressing problems that are actually the bugs that should have been fixed before the product was released. Of course, if these bugs had been fixed before release, the software company would not be able to charge customers exorbitant fees for all the subsequent calls to support. The support person often tells the customer s/he suspects the problem is "in the operating system." I once berated a support person for telling a customer that, pointing out that it was simply a cover for his own inability to solve the problem and that he might as well have told the customer the problem was being caused by the alignment of the stars. Again, he was baffled by my outrage. The ultimate bad experience with a support person is when, after s/he has interacted with you for a certain amount of time and has been unable to solve your problem, s/he tells you that you don't really have a problem and that s/he is going "to mark your case as resolved." Yes, this has happened to me, too; at the beginning of the call, I had to provide my credit card number so I could be charged for the support I received; in essence, I was being charged $90 to be told that I was having delusions! Software companies typically keep metrics on how many support calls they receive and how many they resolve. I often wonder how many of the "resolved calls" were resolved only insofar as the caller became exhausted after arguing for hours with an incompetent support person who could not speak English.

Deadlines are set to be broken. Every day software companies renege on commitments they made to deliver software by a certain date. But, everyone does it.

Vaporware is common. A salesperson sells a customer not an existing product, but the vague description of a product the company hopes to slap together if the salesperson can "just close this deal." But, everyone does it.

And every day venture capitalists pump money into new software companies to perpetuate this ecosystem. The VC's only concern is that the companies will do well enough to provide them with a "liquidity event," whereby they can pawn the whole mess off onto hapless investors at obscene valuations. The officers of the companies, on the other hand, blithely exercise their options and sell off their shares. The public is told that these officers, like everyone else, have the right "to diversify their risk." The fact is no officer ever diversifies risk if the company is doing well.

Of course, customers themselves are responsible for the state of the industry to the extent they have shown themselves time and again to be willing to put up with the unethical practices of the software vendors. Somehow these customers have decided to give software companies a pass for behavior they would not accept from any of their other suppliers. Equally blameworthy is the gullibility of investors in hi-tech IPO's, who still hope to get in on the next big thing, after having been fleeced so many times before.

Perhaps the most troubling thing about unethical behavior in the software industry is the fact that industry participants do not recognize how much money it costs them. Again, a personal anecdote will illustrate. A customer had reported software problems. It was unclear whether the problems were in our software, in the software from another company, or in both. The other company had sent two engineers to the customer's site for a week. They had been unable to resolve the problems or even ascertain where they were. After the week was up, they dutifully reported back to their company that the problems had been "resolved." Immediately after these support engineers departed, an engineer from our company arrived. In two days, he located the problems in our software, acknowledged them to the customer, got our company to issue a patch, and installed the patch. In addition, he demonstrated that the rest of the problems were in the other vendor's software. It had been expensive for our company to send a senior engineer onsite to fix bugs. On the other hand, for the next several years, that customer became what is known in the industry as a "golden reference." The customer lavished praise on our company at every opportunity, including in interviews published in trade magazines. The benefit we received was material, with new customers citing these references as one reason for doing business with us. This is the kind of reward software companies reap from dealing with their customers honestly.

Yes, Professor Cusumano does a good job of describing the software business, but somewhere in the book he should have written: "One of the best ways to build a profitable, stable software company is to become your customer's advocate and not treat him like red meat." It is baffling to me that software executives so often neglect the age-old maxim "Always treat the customer right." But, then, in these days software executives are often too young to know any age-old maxims.

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).

Chapter 4 begins with the following sentence: "Software development is the core technical activity for all companies in the software products and services business." By the way, did you know that the core activity of GM and Ford is to make cars? The chapter then goes on to inform us that such Microsoft development practices as modular design, a deadline for daily code checkins, a nightly build, automated regression testing, immediate fixing of all changes that break the build, regular code freezes, and an iterative approach to design and implementation are all key parts of an advanced and sophisticated software development process. Many software companies besides Microsoft have had these practices in place for years. What is new here? The text of this chapter is also riddled with such useless advice as: the software development process should be structured, but not too structured.

Chapter 5 is titled "Software Entrepreneurship: Essential Elements of a Successful Start-up." What I came away with is that a mere 6 in 10000 business plans end up going public and when they do, over 95% of the equity is held by the VC's. The fact is: in these days of behemoths like Microsoft, Oracle, and IBM, a software startup has about as much of a chance of hitting it big as an oil refining startup had in the 1880's after John D. Rockefeller, the first incarnation of Bill Gates, "combined" the oil industry (see Daniel Yergin's "The Prize"). As Larry Ellison frequently reminds us, consolidation is the name of the game these days in the software industry. In Chapter 3, Professor Cusumano himself states: "It is also probably true that there are now too many software companies in the world by a factor of three or more, and far too many of them are public and have received venture capital funding." In light of this fact, Professor Cusumano perhaps should not have devoted an entire chapter to software entrepreneurship. A better use of his time might have been to devote a chapter to exploring how several companies of moderate size can be consolidated to form a software enterprise with enough heft to begin to compete with the behemoths. There are many interesting issues in this area, such as: how one can identify a constellation of companies that would make good candidates for such a consolidation; how one can resolve the inevitable control issues that arise between the respective BOD's; how one can address post-consolidation issues, such as the integration of software code bases or sales forces; how one can successfully manage the layoffs resulting from a consolidation. Given the pending merger of Symantec and Veritas, it seems the topic of consolidation and M&A should have been discussed in greater detail. For example, consolidation of most of the mid-sized companies in the business intelligence market (for example, HYSL, BOBJ, COGN, MSTR, INFA) or the application server/EAI market (for example, BEAS, TIBX, WEBM, VITR) would create leaner and more viable entities. The pending buyout of Sungard Data Systems by a group of private equity firms suggests one way in which this could happen: a consortium of private equity firms could assemble the considerable capital required to buy out a number of mid-sized firms in one market and then stitch them together. The sooner the software industry leaves behind bubble dreams of IPO's, consolidates, eliminates duplicate product offerings, and sheds the armies of redundant workers, the sooner the industry will return to profitability and healthy growth.

Chapter 6 consists of a set of case studies of software startups. This chapter reminded me that software professionals (even "industry and academic luminaries") almost always fail to understand that just supplying cool, flexible technology to their customers does not constitute a profitable business model. Take the case study of firstRain, whose products enable "real-time business activity monitoring" (a buzz phrase, BTW, that I have heard dozens of times in the last couple of years). Professor Cusumano comments: "I find their solution for creating applications for handheld devices compelling, but ... there is the issue of what to do with some interesting technology." The case study of H5 reveals the same problem: "[Like] firstRain, [H5] had developed a novel technology in search of an application." As an antidote to their fascination with interesting technology, software entrepreneurs should read Jim Collins' book "Good to Great:" "[Those executives who transformed their companies from good businesses into great businesses] displayed a remarkable discipline to unplug all sorts of extraneous junk ... Across eighty-four interviews with good-to-great executives, fully 80 percent didn't even mention technology as one of the top five factors in the transformation." Could the reason why enterprise software capex has plunged so precipitously over the last several years be that enterprises have been "unplugging extraneous junk" in the form of cool, but non-essential, software packages (AKA "shelfware")? The case study of NetNumina, on the other hand, reminds us of how terrible software professionals have been at valuing their companies realistically: barely profitable and with revenues of $14.4M in 2000, NetNumina was offered $50M by BEA to sell out; "But after experiencing a $200 million IPO with OEC, [management declined the offer. ... Now] the founders and holders of common stock and options will probably never see any money from this venture. ... The founders are now either gone or reduced to salaried executives." On second thought, part of BEA's $50M was probably to be paid in inflated BEA stock, so the deal might not have been so good after all. [BTW, my advice to H5 is that they should seek to be acquired by FIC, although recently they have found an excellent application for their technology in the automated review and characterization of corpora of legal documents.]

---> 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?

Cusumano also offers eight Critical Success Factors that are necessary for Software Start-ups to succeed as a business and raise investor money:

1) Strong Management Team
2) An Attractive Market
3) A Compelling New Product, Service, or Hybrid Solution
4) Strong evidence of Customer Interest
5) A Plan to Overcome the "Credibility Gap"
6) A Business Model Showing Early Growth and Profit Potential
7) Flexibility in Strategy and Product Offerings
8) The Potential for Large Payoff to Investors

Don't reinvent the wheel. Read this book as soon as possible, preferably "before" you create that software venture you so boldly dreamed.

Michael Davis, Byvation

Cusumano made a very good job to put in order same ideas that the persons who are in the software business have.
But the big mistake was to not consider the LA Market. There are no examples of Uruguay, Chile, Argentina Start Up's. This market is growing on and Professor Cusumano no cosider it.

This book is an excellent introduction to the nature of software business based on the first-hand experience of the author during the last two decades.

Before I discuss what this book is about, I'll briefly mention what it's not about. In this book you won't find overly simplified "Dos and Don'ts", "ten easy steps to start your business" or readymade solutions. Instead, Cusumano delivers a very sobering insider's perspective on the birth, evolution, -and sometimes- death of software start-ups. His personal involvement with many of the companies discussed in the book provides a very fresh and unique perspective.

The contents of the book cover not only different types of software business, but also different geographical areas (e.g., U.S., Europe, Japan, India and others), enabling the reader to explore different segments of the market with a global perspective.

His discussion on business strategies for software companies and the three broad business models (product, service, and hybrid) is concise and well-written. He gives many real-life examples demonstrating the central concepts of the book, which helps a lot with grasping these concepts and adds credibility to his arguments.

Since this is a very complex and rich topic, there are no groundbraking conclusions at the end of the book. You may even have more questions about software business than you had before you started reading this book. However, you will have some good answers, a solid framework for testing and developing your ideas, and a better understanding of the business aspects of software. You will also find a wealth of properly referenced information that can be used to develop your business plan.

I have been looking for a good book on starting a software business and developing a business strategy for quite some time. This book is by far the best one I have found so far, I highly recommend it.

Michael Cusumano knows what he is talking about. Business books are a dime a dozen but Cusumano's works on software and business come rich with experience and insights. Like so much of high technology, it's not about what technology exists, it's about applying existing technology in innovative ways that change society and build a profit. Do not miss this book!

Even after the dot-com boom and bust, software remains the business world's glamour industry. In this insightful study, professor and industry expert Michael A. Cusumano skips the glitz and goes straight for the nuts and bolts. The result is a clear rendering of exactly what makes one software firm hit it big while dozens of others go broke. Despite a slight, occasional tendency to sound academic, Cusumano really explains why a well-run software company can be a gold mine. He carefully covers the best practices in the software development industry in depth and offers plenty of real-world case histories to add juice to what could have been a dry recitation. He even explains why you have to hold on so long when you call a mass-market software firm's toll-free number. We recommend this detailed book to software pros seeking insight into their industry, as well as to investors and to those who like inside stories about entrepreneurial adventures.

Cusumano presents a solid overview of selected topics relevant to the software business. He focuses on the following topics: strategy for software companies, best practices in software development, and software entrepreneurship. He makes use of case studies and provides insight on the inner workings of Microsoft, IBM, Netscape, Business Objects, and i2. In the chapters discussing strategy, he analyzes product versus service focused organizations. He also discusses market segmentation and whole product solutions as described in Geoffrey Moore's "Crossing the Chasm." With regards to best practices in software development, much of the material is from "Microsoft's Secrets." Cusumano describes the pitfalls of waterfall development and describes the key concepts of Microsoft's synch and stabilize technique. A few pages are devoted to outsourcing and specifically the rise of the Indian software business. I would have expected more analysis on some of the newer agile development methods -- such as XP. Lastly , Cusumano covers software entrepreneurship. He provides an eight point framework to evaluate a software start up. Does it have the following characterisitcs ?
1. Strong management team
2. Compelling new product, service, or hybrid solution.
3. Strong evidence of customer interest
4. An attractive market
5. A plan to overcome the credibility gap.
6. Business model showing early growth and profit potential
7. Flexibility in strategy and product offerings
8. Potential for large payoff to investors.
The text also has a useful appendix with income statement analysis of Business Objects and i2 , and growth comparisons between various organizations. There is nothing in the text I would consider groundbreaking, but it is a solid overview of the software business appropriate for software managers and entrepreneurs.

I've been reading the digital version of this book. I consider the content good, but the fact of havig to read it on my pc, because isn't printable, is a real Pain.. why not? I bought it anyway !! Think in your foreseas readers for God's sake!!

Lots of great information - presentation is a little rough - this reads like a great 1st or 2nd draft - I still recommend.

This is the best book so far I have read about software business and strategy. The author answers many questions on my mind about the software business strategy and development, for example, the healthy balance of a software company¡¦s revenue between products and services. I also found this book is very practical. Highly recommend this book.

Michael Cusumano's work has always been original and provoking. This new book provides a comprehensive and stimulating vision of the software business. Michael is one of the few persons who has really and personally studied software companies and market dynamics. His contribution is extremely important for software engineers and software managers who want to understand the critical challenges of "doing software".

I plan to adopt it as a textbook for the graduate course on software engineering economics I teach at Politecnico di Milano (Italy).

A concise perspective on the major decisions that confront every software business. As the CEO of a software startup, I found Dr. Cusumano's work insightful yet obvious (in the way of Dale Carnegie's How to Win Friends and Influence People). We all can learn something from this book. I was particularly struck by the discussion on the tension between a "software" company and a "services" company, which is something that we struggled with mightily and after much debate arrived at the same conclusion that Dr. Cusumano so eloquently lays out. If only I had read this book a year ago! This is a must read!

I am a GM of a small software company in Sri Lanka. I had many questions and this book has answered quite a few in the second chapter alone. Prof. Cusumano writes well because I read it easily. Also, he has done the background work for it. I have read his column in the CACM and his ideas could be of much value to anyone running a software company or aspiring to start one.

I have just one complaint about the MS Reader version. I have found it impossible to read graphs and tables. I do not know whether it is the same with the Adobe reader version.

I have given five stars because I found the book informative as little could be garnered from trade magazines about the software industry or its players.

Buy the book in paper form because you could refer it quite easily. I do not know whether you would like the e-book form with its inherent limitations. I have found it difficult.

Cusumano keeps surprising me with the timeliness of the books that he has published during the years. Back in 1995 I was head of development for a software company and once I got hold of his book "Microsoft Secrets: How the world's most powerful software company creates technology, shapes markets, and manages people" I became a believer in Cusumano's work. The follow-up work from Cusumano and co-writers have become part of my software engineering and software business library. The last work from Cusumano "The Business of Software: ..." is very timely as software market is evolving rapidly towards commodity business where end user organizations expect to buy and pay for software based on different grounds and premises than before.

Cusumano's book reflects on many hot topics that EVERY software executive should be aware of like different software business models with corresponding economic metrics, setting up market segmentation with predictable revenue models, best practices in software development, outsourcing to low-cost countries like India and China etc. Also, Cusumano discusses thoroughly about software entrepreneurship and issues when setting business strategy and what impact venture capitalists could have for a software vendor. I believe that many software organizations do not understand what it really means to be run by venture capital driven Board of Directors. According to the ten case studies outlined in his work, some healthy software companies were pretty much destroyed by VC's and this is certainly not something that one should want to happen. Cusumano lists eight points that one should look at when evaluating software businesses. This was very helpful for me to reflect on and see how my company rates when evaluated against these eight points.

This book should be read by EVERY software executive that wants to be updated of what is going on in the software business. This is one of the very few available books that specifically address the needs of a software businesses and this makes this book even more valuable. Cusumano outlines ten different case studies in his book, some complete failures and some successful and each and every one of these case studies have a lesson that we should learn from. We seem to think that we have seen it all, but the best way to learn is to learn from mistakes and never repeat these mistakes. Unfortunately we tend to forget this rule and I have decided long time ago to learn from others and then apply this knowledge in my own software business. I have introduced several successful products by remembering this rule. I also recommend you to read other books from Cusumano and the experiences that he shares from tens of different businesses.

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.