RGM

Selling software on the Internet

I was recently asked to comment on Internet selling of software:

Internet sales of software has obvious advantages: it is vastly less expensive than shipping physical products; allows a company to develop direct relationships with its end-users (as opposed to those relationships being filtered through distributors) and can (when done right) provide the capability to custom-tailor solutions to specific target segments. For these reasons, I think we can expect to see those companies that can figure out a profitable business model for internet software sales move aggressively into this area.



The challenges of Internet sales are also daunting. Protecting one’s intellectual property will become increasingly challenging, since the cost of duplicating digital products is virtually zero, creating a huge incentive to illegally copy software.



The model for Internet selling is also different than the classic product to distributor to customer model. The would-be Internet software firm has to now perform the functions – marketing, branding, and creation of awareness – that distributors conventionally handled, which can require entirely new skills. This can make the sales force in place obsolete.

Internet selling also has to compete with the problem that firms that ‘grew up’ as Internet-based retailers tend to offer lower pricing than their more conventional competitors.

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• Posted: Tuesday, March 28, 2006
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