What makes wireless software companies profitable

Throughout my career, I have often been in situation to transition companies from custom development to product to solutions. We have discussed here what influences most the penetration of a new technology in the ecosystem. Along the road, I have noted a few numbers that seemed to make the difference between the companies that reached a profitable stage from those who did not. I will focus here particularly on product development and product line management


Below are a few of these numbers. I have researched over time many of those. I won't bore you with the maths or the academics, here are just my magic numbers.


Golden operating numbers for profitable wireless software business:

• Gross margin >60%
• License 70%
• Maintenance and support 12%
• Professional services 8%
• Hardware / third party 10%

Many companies (all?) have to choose between short term, tactical opportunities, which might not be contributing greatly to the company's overall strategic direction but can influence the results of the quarter, and long term investments such as launching a new product which will cost money but not see an immediate result. Here is how I have been measuring whether my projects can meet the above profitability objectives.


Change requests, custom development

• Roadmap acceleration 50% margin
• Regular change request (could be resold but would not develop it if it were not paid for) 66% margin
• Customization that cannot be resold 75%
• Customization on old product branch, new product branch 80% and up
• There is no such thing as "we'll make money on the next ones" or "lets spread the cost across several opportunities" . A custom work needs to be profitable on is own.

Business case, new product introduction

• break even (development costs) within 12 months of the first selling month (GA)
• 3 times development costs recovered in sales within 24 months 

These numbers do not guarantee profitability but I have found that not using them guarantees losses :-).

I am not sure these will be useful to you but I found them good guidelines throughout my career.


PS: Don't forget Hofstadter's Law: "It always takes longer than you expect, even when you take into account Hofstadter's Law"

BBTM Part 4:TIM & BitTorrent

TIM

Telecom Italy is facing the same issue most mature operators see today:

• Mobile video traffic is growing explosively, threatening to overcome current capacity
• LTE is a few years away and requires a completely new network overlay
• The introduction of tablets and smartphone is accelerating the phenomenon

Additionally, TIM is lobbying GSMA to implement fast dormancy directives so that device manufacturers and apps can optimize signalling by batch sending messages rather than on an ad hoc basis.

End to end QoS via CDN interconnection and QoS guaranteed on a private backbone (IPX) is high on their agenda for video services.

TIM is answering these issues in a somewhat classic manner, introducing fair usage caps (daily, monthly), throttling, video optimization and policy management. The innovative part is in the introduction of tiered QoS (speed, duration) per class of service, urging the subscribers to select the speed and capacity the most adapted to their current or projected usage.

An interesting data point from TIM's presentation is related to signalling congestion. In many cases, signalling is as much an issue as actual bandwidth in congested network. Signalling is not only a function of the number of subscribers in a cell, but also the type of device and type of apps being used. For instance, Angry Birds on Android  represents a +351% signalling increase compared to the iOS version, due to in-app advertising. The app polls and displays an ad at each level change, creating signalling overload.

 

 
BitTorrent

Eric Klinker, CEO of BitTorrent, walked in the room like a man with a target on his back. Seen as many as a powerful threat to the business model of content owners and telcos globally, BitTorrent is now advocating the use of their technology (mTorrent) as a highly scalable, secure way to transfer files, with a priority.

The plan for world domination means the replacement of TCP by P2P transfer, to allow capacity for the rest of the traffic.

 

What is interesting, is that BitTorrent has worked and is looking to work increasingly with carriers to help with P2P bandwidth consumption and traffic steering. For instance, in New Zealand,  BitTorrent works with Telecom New Zealand to prioritize to prioritize peer traffic on the island, reducing offshore traffic and associated costs .
Another example of opportunities for policies to transcend the core network, towards content and app providers.