Tesco to enter software market

Two days ago, Tesco announced that it planned to enter the UK consumer software market by launching its own range of own-brand desktop software applications including: an office suite; two security / virus products; a personal finance tool; a CD/DVD burning tool and a photo editing tool.  In a statement, the company said that the software has been specifically developed for Tesco and would retail at around £20 per title - substantially undercutting the price of existing branded products.

Tesco clearly has ambitions to extend its online presence beyond its store retailing, utilities and financial services businesses.  The Group has invested heavily in building Tesco Direct, its online shopping site.  In the six months to June 2006,the Tesco.com businesses achieved sales of £554 million. Like-for-like sales were up 28.7% with profit up 43.1%.  Despite this impressive growth, online revenues still only account for 3 per cent of retail sales.

So why would a food retailer launch its own software?  And, why not direct its customers to freely available open source software such as Open Office?

In its gap analysis, Tesco will have seen that the home computing hardware market has become commoditised around two competing operating systems and three chip manufacturers.  Tesco probably also recognised that the web browser / media player sector was dominated by free-to-use players and offered no opportunity to monetise a new entrant.

Although by most standards the consumer software market is fairly mature, most existing products are highly priced and for the vast majority of users over-engineered.  It is said that users typically only use ten per cent of most software programmes.  How many people do you know have used any of the scientific formulas in spreadsheet programmes? Additionally, the Internet itself has brought about a change in consumer acceptance  of technology of being 'good enough' or fit for purpose.  At the same time, inter-operability has become more pervasive with consumers now less tolerant of closed proprietary software.

Tesco has taken over from Virgin as the company that can apply its brand to any new business venture.  Virgin was perceived as being the underdog trying to claw its way into new markets through doing things differently - always with a joint venture with an established player, e.g. Singapore Airlines, RBS, T-Mobile, Stagecoach, etc.  Tesco can go it alone - trading on its reputation of value for money, customer service and attention to detail.

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