Capitalizing Software Distribution
This business plan was sent to several (large) computer distributors. "X" is the name of the company which was sent the plan.
This is a business plan about capitalizing software distribution which, if implemented, would bring only advantages to X.
The present business plan describes the capitalization of software distribution. If implemented, the plan would bring advantages to: X, X's customers, software developers.
The plan is a software implementation of the iTunes music business model. Apple has been able to capitalize digital music distribution by pooling customers' money in order to compensate authors by sheer volume instead of item price. So, why not follow the same path with software instead of music?
The underlying concept behind the present business plan is for X to, initially, bring together a large number of software applications, publish them on physical support (CD / DVD), and distribute them bundled with its computers.
X would provide its customers a collection of software integrated in a single platform which would be used by computer users to search for the software applications they need.
X's would extract profit from the market by selling the software collection.
X's reputation would increase as customers would be more and more satisfied by the high quality applications reviewed and published by X in a single integrated solution, and who would thus be grateful to X's efforts.
X's reputation would increase as customers would not have to waste time reviewing software applications which would suit their needs, and who would thus be grateful to X's efforts.
X's reputation would increase as software developers are better compensated for their efforts, and who would thus be grateful to X's efforts.
X's computers would more sought by potential customers since they would come with a rich, high quality software collection.
X's customers' advantages
X's customers would rely on X's long established reputation to provide them with high quality software, without the strenuous reviewing process they would have to perform in the absence of X's integrated solution.
X's customers would not have give their personal details to various online companies, for purchasing software from the Internet.
X's customers would have a physical product, the CD, which would give them a feeling of increased stability and trust in the developers and publishers of the included software applications.
Software developers would be compensated according to the popularity of their software.
Software developers would face very low publishing and distribution costs, since X would pool all these costs and thus decrease all associated expenses.
Software developers would not have to waste time marketing their applications, thus gaining more time to improve the quality of their software.
X would be responsible for gathering high quality freeware and shareware software, publish them all on a single CD and bundling this CD with each X computer. A computer could actually be a: workstation, desktop, notebook, and even printer and photo camera.
X would want to create two distinct software collections, one for home users and one for corporate users because of their different software needs. The corporate licensing model is automatically covered by this business model since a CD is bundled with each computer, which in turn would be used by a single person at a time.
X would create a CD which, once inserted in the CD drive of the user's PC, would start an application which would help the user browse the software collection, by providing detailed X reviews, descriptions, and screenshots of each included application.
The user would also have the possibility to send feedback, to X, about the software collection and about this service.
One very important feature, which would help this business method develop, is the voting system. Users would be able to vote the software applications they use, and also suggest new applications, thus providing X with two advantages:
Users could also vote the compensation for each program they use.
Separate CD sales
The software collection CD can also be sold to X's customers without being bundled with computers.
Once a customer has purchased a CD bundled with a computer, he has the ability to create an account with X's online software sales department. This account would allow users to be notified of updates of the software collection and receive, by mail, the updates on CD.
X could, at some point, start selling online the CD to customers, in addition to those bundled with its computers.
X could also, in the future, extend this service by offering online access to the software collection, to those customers who purchase a yearly subscription.
The price of a CD has to be low enough so that the market could accept it, and high enough to minimalize the share engulfed by expenses, and to maximize the profit gained by X and by software developers. We will assume a simple price of 20 USD per CD; an initial price of up to 30 USD allows X to decrease it during competition, down to 20 USD.
We will assume, for simplicity, that X sells one million computers per year, each having a CD bundled with it. The total capital extracted from the market would be 20 millions USD per year. From this, X would reserve half for software developers, and half for its expenses and its profit.
Although, at a glance, a few millions USD per year seems little for X, it has to be considered that X benefits from an increased perception of its brand, and that this business model represents only the beginning of the capitalization of software distribution.
Software developers would have reserved by X half of the price of each sold CD, 10 USD per year. This amount would be divided among developers according to the negotiations X would carry with them, and according to the voting X's customers cast for the software they use.
In average, 10 USD would be enough to compensate several hundreds software developers. If we assume that each developers is compensated with 5 cents per sold CD, there would be room for two hundred software applications in the software collection. For 1 million sold CDs per year, the developer of a single software application would receive 1 million * 10 USD / 200, that is, 50'000 USD.
This amount would strongly motivate many independent developers to create software of a quality high enough to be accepted in X's elite software collection. Once again this translates into higher customers' satisfaction, and therefore in an increased perception of X's brand.
People use software. People like to compensate low cost, high quality services in order to benefit again from them. The market needs solutions. If X is there to cut the costs of CD production, packaging, distribution, marketing, sales, and also cut the price of the software, customers would rather buy X's integrated solution than waste time looking elsewhere for the more expensive applications they could find.
X would be required to take little effort into implementing this business plan. X's computer distribution network is well established and can support the bundled CD with virtually no additional expenses.
The present business plan has huge potential for future development, just as the iTunes model proved to be profitable in the music business.