All Things

I’ve begun to tackle the subject of flight instruction on my site AeroGo, so if any of you out there have always toyed with the idea of learning to fly, you might want to see this post and then check back every once in a while.

Better yet, get a Xanga account and then subscribe, and you can get an email alert every time AeroGo is updated.

In this first post, I discuss some of the basic issues involved in choosing among the many schools and flying clubs, etc. that offer flying lessons.

I also note how options are expanding and costs likely heading down as a result of the new sport pilot/light sport aircraft rules, and there’s a number of helpful links for more info on these changes, as well as sites that can help you locate a flight instructor or flying club.

InformationWeek is reporting on new navigation features for GM’s OnStar system, now 10 years old. OnStar hardware is to become standard on all GM vehicles in 2007. The service, which costs $16.95 per month or $199 per year, has been heavily advertised in recent years and now has about 4 million users (although a substantial portion of those may be recent car buyers who have yet to actually pay a subscription fee, since the first year’s subscription is included in the vehicle purchase price).

The new plan, Directions & Connections, according to GM’s feature comparison chart, will cost $34.95 per month or $399 per year. I just have to wonder if this is really going to be an attractive package for many people, when you can buy quite nice, portable GPS navigators and databases for only a few years’ worth of just the extra cost of the new plan.

An interesting comparison might be made to Apple’s .Mac service, which costs $100 per year, but has been steadily adding features without a price increase. While I haven’t yet signed up for .Mac, every year the value improves, so I won’t be surprised if I do eventually subscribe. Apple’s focus on increasing the value of their pricey service seems more prudent than GM’s looking to squeeze revenue out of OnStar, especially since either service may do a lot to stimulate customer loyalty.

On the other hand, neither vendor has done anything, as far as I can tell, to develop their service into a platform for third parties, which might be the more lucrative source of revenue in the long run, especially as subscribers increase. It seems to me that with services such as OnStar (where the system is only used rarely, at least in situations that require a human operator) or .Mac (online), much of the cost will be setting up and maintaining the system, with relatively low marginal cost per user.

Apple seems to at least understand that .Mac’s value improves as more of its software (e.g. iPhoto, iSync) ties into the service. GM might do well to remember some wise words from its old competitor, Henry Ford:

“The man who will use his skill and constructive imagination to see how much he can give for a dollar, instead of how little he can give for a dollar, is bound to succeed.”

OK, I’m going to try to cover one of those “small items” I promised the other day. Actually, it may not be so small to the folks at Starbucks. Last week the Atlanta Business Chronicle reported that Coca-Cola appears to be developing a simple to prepare high-quality, single-serving coffee product that could be sold to its countless restaurant customers. This would supposedly make it easy for any restaurant to offer a line of coffees competitive with Starbuck’s, and presumably (hopefully!!) at a lower price.

While I suppose many would argue this wouldn’t matter much because the other places couldn’t match Starbuck’s atmosphere, to me this is actually a plus. I’ve never liked Starbuck’s atmosphere, though to be fair I haven’t visited many. I also seem to have a hard time figuring out what to order, and at nearly $4 each, don’t care to experiment too much. In any case, I think I like the French sort of coffee you get at La Madeleine or some of the beignet places we have here in Houston better.

There’s a new coffee/ice cream place here, Piccomolo, that my daughter likes. They offer free wi-fi and seem to be pretty popular, but don’t have a whole lot more ambience than a Baskin-Robbins. To me, coffee is about relaxation and either concentration (e.g. on a nice book) or conversation, which I think happens better in nicer, more comfortable and non-noisy settings (unlike Starbucks).

In any case, I think Starbuck’s relatively free ride is about over, and we’ll see a lot more serious competition in the coffee space before long. I hope prices will go down some, too. Coke’s likely approach of selling through their restaurant customers may be hard to beat. They’ve fought some pretty tough marketing battles over the years; maybe it’s appropriate their ticker symbol is KO.

IBM is once again giving away some software; after donating its VisualAge tool to Eclipse and so many other products to greatly invigorate the open source movement, this isn’t so surprising. What’s more interesting is that these donations seem to be moving higher up the value chain, as IBM will reportedly begin giving away a Universal Database Express-C version of its high-end DB2 database that will run on up to two-chip systems.

It seems to me that a sign of a healthy software ecosystem is the gradual price decline of particular packages as they grow more complex. One example would be Microsoft’s bundling of Word, Excel, PowerPoint and various other packages into Office, which doesn’t cost nearly as much as the total prices of individual packages 15 years ago, especially after adjusting for inflation. Excel itself, when introduced on the Mac, had consolidated functions previously handled by Multiplan, Chart and some other programs.

One of the common signs that a particular software ecosystem is declining is that this trend of generosity on the part of the ISV reverses, and it starts to look for ways to increase unit revenues. This is one of the reasons why I suspect that much of Microsoft’s software business isn’t as healthy as it once was, as they have at least begun to make changes in their licensing/pricing that for some customers might be viewed as an effective price increase.

Some vendors, such as Computer Associates, seem to have done fairly well by buying up aging software and gleaning what they can from the remaining user base, many of whom may prefer to stay with what they have been using for quite a few years. Though potentially an opportunity for exploitation, if managed with restraint such a business can provide a valuable service, by keeping users from languishing without vendor support.

Nevertheless, in a healthy, growing software ecosystem the price of packages should normally decline, since the user base is growing (allowing development costs to be spread over more units) while development costs should be moderating as the product matures. Actually, while the first effect is often realized, for some reason (perhaps Parkinson’s Second Law - expenditures rise to meet income) the second is more difficult to achieve.

As sales of its software rises, a successful software vendor will typically add features while keeping steady or lowering the price. Though holding the line on costs, in the real world the size of programming staffs generally seems to balloon, which gradually works to reverse the virtuous cycle of generosity. This excessive growth in programming staff is a curious outcome which I suspect results from management’s desire to speed development in response to competition, despite Fred Brooks’ showing over thirty years ago, in his classic essay “The Mythical Man-Month“, that such an approach is generally counterproductive.

Peter Drucker frequently argued (e.g. Managing for Results, Ch. 9) that one of the biggest problems in business is vendors’ unwillingness to kill off their own aging products, thereby retarding innovation and eventually causing loss of markets to more innovative upstarts. I suspect a software ecosystem requires a modified form of systematic abandonment, where products gradually decline in price and eventually are given away, either as open source or as an inducement to attract new users who may upgrade a to a vendor’s more advanced offerings.

Vendors also ought to consider still selling at a lowered price older versions and upgrades of their software (at least as long as these are supported) since this might be a good approach to segmenting the market between higher-spending customers with newer hardware and budget-conscious buyers using older hardware (and might induce additional upgrades as the cost declined).

Of course, much of the business motivation for open source comes from recognition both of the need to continue stimulating a software ecosystem to attract new users (as many are attempting to do now with Java) and that much of the revenue opportunity comes from services and other add-ons, which seem also to be a fairly effective way to segment the market.

Every industry has its own unique economics. I remember a database seminar once in which a vendor rep described how he had worked with grocers, where the prices, discounts and other factors changed constantly. Airline economics, with which I’ve been fascinated for years, is another very difficult area.

Software, too, has its own sort of economics, driven by the vendors’ desire to smooth out the revenue stream (development is steady but revenues tend to bunch around releases), the extremely low unit marginal cost, and intense competition amidst constant technological change. I’m surprised there doesn’t seem to be more active discussion of the unique economics of software, as this might help to reconcile vendors and the open source community.

Software has been the “sick man of technology” for some years now, with disappointing advancement (despite incredible gains in hardware) and recurrent schedule slips. A better understanding of the underlying economics might go a long way in producing a newly healthy software industry.