Software applications are the building blocks of the new economy. So why is the software business still so old-fashioned? Most applications are sold the same way that books, beer, and diapers are sold. Software firms pay "market-development funds" to get better placement on store shelves. They may ship lots of shrink-wrapped boxes, but they don't know how much money they've made until product is returned from distributors -- which, in turn, wait for returns from retailers. It's hardly a model for cutting-edge retail.
"The software-retail system breeds big inefficiencies," says David Prais (above left), 35, CEO of Chumbo.com, an online retailer in Minneapolis. "Everyone is playing for the moment. No one is thinking five years out." Adds Tim Burton (above right), 35, Chumbo's cofounder: "The 'blood-extortion model' that retailers have imposed on software isn't going to last. Publishers are looking for alternatives."
Prais, who served as Dell's European marketing manager and as Gateway's director of global marketing, wants to provide that alternative. Chumbo was the first to sell Windows 98 and Microsoft Office 2000 over the Web, and the first to let customers preorder software. Its Web site offers about 15,000 titles from nearly 500 publishers. It generated sales of more than $10 million last year and expects to double that in 1999.
How is Chumbo rethinking the software business? First, by recognizing that one way to understand how people buy software is to understand how they buy hardware. "The computer companies can't afford to stop making money once they sell a PC," says Jeff Hemenway, 34, senior vice president of sales and marketing. "We can help them stay connected to customers."
IBM is a case in point. Many people who buy Aptiva computers go to IBM's online Easy Choice program (www.easychoice.com) to buy their software. When customers register their PCs online, they are guided to the Easy Choice site. Once there, they can buy five titles for $9.95, total, and get more software titles at substantial discounts. Chumbo supplies the software for IBM. "A customer's relationship with IBM doesn't need to be about just buying an Aptiva," Prais says. "It can be about joining an IBM group. Easy Choice is the IBM version of Sam's Club."
Chumbo still sells lots of applications to people who bought their computers years ago. And there's another way that it's changing the game: Chumbo's site doesn't accept product ads from software companies. But it does offer extensive links to product reviews from Ziff-Davis, and it encourages customers to post their own reviews. "I don't want to sell my customers bad software," says Prais. "I want to be totally honest with them. I want to be the ultimate source for software -- and for information about software."
Chumbo is pioneering yet another big change -- on the physical side of a virtual industry. The company has been working with Zomax Inc., one of its major investors and one of the world's largest replicators of software on CD. The two companies want to come up with better ways to license, manufacture, warehouse, and ship products. For instance, when Chumbo sells a Zomax software CD, Chumbo ships it in a plastic sleeve. There's no box and no user's manual (Chumbo offers the manual online or on the CD itself). These innovations make software faster to manufacture, cheaper to ship, and easier to return.
Chumbo's model is catching on -- and for good reason. Says CEO Prais: "Right now, retailers have the control. We don't want to control anything. We want to help publishers make more money and give people a richer retail experience."
You can contact David Prais by email (email@example.com).
Sidebar: Software at Your Service
It's a tough question: Whom do you call when you have a software glitch? The company that made the software? The retailer that sold it to you? The hardware company that bundled it with your new PC?
Chumbo.com wants to develop good answers by reframing the question. Forget cheaper service, says Jeff Hemenway, senior vice president of sales and marketing. How about creating fewer problems in the first place? What may seem like a big problem to a customer, he explains, often starts with a little glitch. One example: applications that have compatibility problems with certain computer models.
That's why Chumbo doesn't sell bundled software until it has been tested for compatibility with all the models in the line. "But this testing is incredibly expensive," Hemenway says. "Every time a PC company makes a change, the software has to be tested again. So we're looking at common design specs that we can take to publishers." Those specs cover everything from default settings for screen resolutions to more standard ways to work with modems.
There's a second component of Chumbo's initiative: improving error messages. Chumbo urges publishers to write their error messages in plain English and to offer plenty of good troubleshooting tips. "We simply have to provide a better customer experience," Hemenway insists. "And helping customers solve their own problems is a big part of the game."