Instapundit on Sonic Foundry's financial difficulties.
Madison, WI Based Sonic has a reputation for some excellent products, including Acid Pro, an audio editor. There have been a few articles in the local newspapers on the company. Some of their challenges include:
1. It's very difficult to make money selling packaged software.
The industry is shifting to a recurring revenue model (monthly or annual fees). I don't see any other way to make a software company work. These difficulties have led many such firms to try and diversify their business (Adobe is trying to build a pdf forms services business, for example).
2. Difficult diversification schemes
Sonic attempted to get into the homeland security software game. While the products they acquired and developed have merit, it takes a huge amount of money to play in Washington (I remember working in the GIS business years ago and learning about the practice of hiring retired generals and admirals to staff the Washington offices of large tech companies).
3. Overhead
Acquisitions and headcount growth made things even more difficult for packaged software firms (they did acquire some service businesses).
There are some bright spots in the Madison tech scene. Health care software vendor Epic Systems recently won a huge contract with Kaiser Permanente (1.8B). Epic, founded in 1979, has grown the old fashioned way.
After working in the software business for years, I like this quote (from Bill Joy, I believe): "the quality of a company's software has an inverse relationship to the amount of money spent on marketing".
9:33:28 AM 
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