After relinquishing the chairmanship in mid-1988 (see pagesand
This caused me to probe the theoretical foundations that underlay my intuition. I figured that if I could explain them, then I'd equip my audience with the intellectual tools I'd been using, subconsciously, over my career; whether they chose to use them, of course, was their business and not mine. As I wrote this paper, I was a little surprised at just how closely such apparently unrelated threads are woven.
The paper had, as far as I can determine, no impact whatsoever upon anything. As far as I can tell nobody ever read it and, if they did, failed to understand it or thought it was only about dividends, rather than how software companies should be managed to exploit their unique advantages.
This is the theory of management which guided the foundation and growth of Autodesk, and it forms the basis of the analysis and recommendations I wrote more than two years later in Information Letter 14 (see page
The software business differs in fundamental ways from established industries. Viewing the economic fundamentals of our business in the context of the larger economy suggests Autodesk may be an exemplar of a new class of information-intensive companies.
One phrase that seems to recur when explaining the software business to people familiar with other industries is ``this isn't like any other business''. This assertion is often dismissed out of hand and, indeed, many aspects of the software business are analogous to other long established and readily-understood businesses.
But the software business is unique. The combination of minimal capital spending requirements, the extremely high operating margins that result from successful software products, low up-front investment to develop and launch a product, and the inability to predict which products will succeed among a large number of potential products combine to define an industry which behaves, both as seen by management inside and by analysts and investors examining operating result aggregates outside, unlike any well-known model.
If the software business is fundamentally different from, say, book publishing, semiconductor manufacturing, financial services, or management consulting, one cannot look to those sectors to provide prototypes of how a software company should be organised, managed, grown, and valued in the capital markets.
This paper will start from first economic principles to examine the fundamentals of a software company. Viewing those fundamentals as part of the overall economic system suggests that software companies are unique; indeed, the software industry may be the exemplar of a new class of information-intensive businesses, the New Technological Corporations. These companies must find their own way to the strategies that best fit the realities of their business. Operating experience, growth strategies, and principles of valuation derived from high-technology hardware manufacturing may be no more relevant to these new industries than the experience of building a railroad would be to broadcasting.
Editor: John Walker