Transcript University of Jyväskylä

SB Program
Basics of Software Business
ITK260
Fall 2003, Rauli Käppi
In cooperation with Oulu and Helsinki SB-programs
Special thanks to Oulu SB-line, who has been the major
contributor for this material
University of Jyväskylä
SB Program
Lecture focus



Deepen the knowledge regarding basic definitions in the
field
Understand the relationships between these definitions
This lecture does not concentrate on any geographic
area, thus this material should be applicable in most
markets
University of Jyväskylä
General characteristics of software
generations from the viewpoint of
marketing by Autere, Lamberg & Tarjanne, 1999
Software
generation
The buyer
Acquisition
method
Central
computer
software
Centralised ITunit
In-house
development
Development
decides who gets
the next SW
Nearly nonexistent
Minicomputer
software
(Company’s)
unit’s ITdepartment
Project
delivery
Direct sales
Supports and
compliments
sales
PC and clientserver –software
Unit- division-,
or organisation
management
Software
product
Sales channel
Equal to sales
Open network
software market
Consumer
Web-based
service
Direct sales
combined with
sales channels
More important
than sales
University of Jyväskylä
Sales
method
SB Program
Role of
marketing
SB Program
Some definitions…
Business Model
By Adrian Slywotzky 1996

Is constituted by the way the company:
– Selects their customers
– Defines and differentiates their offerings
– Defines the tasks carried out internally, and the tasks that are
externalized / outsourced
– Gains its resources
– Enters the market
– Creates added value to their customers and
– Earns profit
University of Jyväskylä
SB Program
Some definitions….
Strategy



A term so often mentioned – how often does it seem that
the users of this term truly have a specific definition for
the word they are using…
A commonly used definition of company strategy: What
the company sells, to Whom it sells and How
This can be divided into subcategories -> (tactics vs.
strategy)
University of Jyväskylä
SB Program
The market-driven planning framework
Räsänen, 2001
University of Jyväskylä
SB Program
Strategy areas (sub-strategies)



The process for making product strategy decisions in a
company is referred to as the product strategy process
Product strategy has been identified as the most
important management area of software product
business
Product strategy answers to the questions: (McGrath
2000)
– Where are we going?
– How will we get there?
– Why will we be successful

The function of a product strategy is to link the company’s
product development to its business strategy (McGrath,
Anthony & Shapiro 1996)
University of Jyväskylä
SB Program
Some criticism
Vähäniitty, 2003

Textbook approach to strategic planning is (Minzberg,
Ahlstrand & Lampel 1998):
– Analyze the industry
– Select strategy
– Build tactics around the selected strategy

Critics:
– All is based on theoretical ideals
– Not in direct connection with the real world
– Outcome from the planning is almost always “off” from the later
discovered – original planning did not include all the factors
University of Jyväskylä
SB Program
One critical view…
University of Jyväskylä
SB Program
….it is never ready


Important point to be learned here: The dilemma is to
commit to a future (with plans) while retaining the
flexibility to notice and adjust to the real future as it
arrives
Differences in big and large companies…
University of Jyväskylä
SB Program
Horizontal and vertical markets

Vertical SW applications: domain / industry specific
– Finance, GSM-network control

Horizontal SW applications: generally applicable, not industry
specific
– Security and privacy, software testing tools, CASE-tools
Vertical
markets
Vertikaalimarkkinat
Horizontal
markets
Horisontaalimarkkinat
University of Jyväskylä
SB Program
Some classifications of SW
This is heavily dependent on the selected viewpoint…





COTS = Commercial-Off-The-Shelf –software
MOTS = Modified-Off-The-Shelf –software = Enterprise
Software
Tailored software
Embedded software, is SW that compliments and/or
enables the functioning of some device
Enterprise software can be domain-specific, crossindustry, or mass-software
University of Jyväskylä
SB Program
Example of a value chain
End-user
organization
Application software
supplier
Infrastructure
software supplier
System
integrator
Application service
provider (ASP)
Infrastructure service
provider (ISP)
Value chain perspective was especially popular during
early E-commerce research
University of Jyväskylä
SB Program
Example of a value chain
Mobilenet Value Chain
Co 1.
Co 2.
Co 3.
Co 4.
Co n.
9. Handset
Vendors
6. Tools & Software Providers
10. Private
customers
-
1. Content
Creators /
Holders of
Rights
2. Content
Providers
3. Service
Bundlers & Packagers
4. Value Added
Service Providers
Address DB etc.
Effectors:
University of Jyväskylä
8. Networks Access &
Service Providers
5. Gateway
Providers
Standardization
Organizations
7. Infrastructure
Vendors
Research Institutes
and Universities
Venture Capitalists
SB Program
Cluster

Industry clusters consist of agglomerations of competing
and collaborating industries in a region networking into
horizontal and vertical relationships, involving strong
common buyer-supplier linkages, and relying on a shared
foundation of specialized economic institutions (Juhani
Warsta, Oulu university)
University of Jyväskylä
SB Program
General characteristics of knowledgeintensive products and companies
1.
2.
3.
4.
Uncertainty is involved with the acquisition and creation
of knowledge
The cost level of the first product, the creation of
knowledge involves high costs (“Cheap” example: Nokia
estimates that the development of one Symbian / Nokia
60 game product costs 500 000€ for a game-developer)
Minimal cost for the copying and transferal of knowledge
(explicit knowledge)
Positive effects when networking
-
the usage value does not reduce even if the knowledge is
shared
University of Jyväskylä
SB Program
General characteristics cont…
5.
The protection of knowledge is problematic
-
6.
Company knowledge (tacit knowledge)
-
7.
secrecy is often the only way (how efficient is it?)
difficult to copy or imitate, company-specific and difficult to
replace
Path dependency
-
knowledge is often based on cumulative pieces of information
and is connected to previous core skills and specialisation
University of Jyväskylä
SB Program
General characteristics cont…
8.
Core competencies are based on cumulative,
specialised and partially collective abilities
-
9.
10.
The value of a product is difficult estimate before its use
Packaging knowledge – problem
-
11.
producers are “locked” into their own history, specialisation is
important
Why would you pay for a knowledge you have already received,
why would you pay, if you don’t know what you will get
“Find out what they know and charge the rest” – codified
knowledge –software product view
University of Jyväskylä
SB Program
Customer relationship and mass
marketing
Customer relationship
marketing
Mass marketing
World view
Controlling a portfolio of customer
relationships
Controlling a portfolio of
products
Most central
concepts of
marketing
Building commitment, personal
relationships and interaction
4P = Products, Promotion,
Price and Place
Identification of
customer needs
In cooperation – identification is
done as both parties learn from
each other
Market surveys – companies
seek to answer to identified
needs
Activity
Both parties are active and take
initiative
Companies must find the
customers
University of Jyväskylä
SB Program
Customer relationship and mass
marketing cont.
Customer relationship
marketing
Mass marketing
Starting
international
business
Concentrates on business
relationships with other (active)
companies
Selection of products /
markets, definition of market
goals, entry & marketing plan
Differentiation
Differentiating customer
relationships
Differentiating products
Advertising
Does not have great significance
An important factor
Interaction with
customer
Large, the company is willing to
negotiate on its short term goals to
meet the long term goals
Small – company’s own
short term goals are primary
University of Jyväskylä
SB Program
Typology of SW companies
Customer relationship
marketing
Mass marketing
Tailoring /
professional
services
Traditional Finnish company,
Artifacts are tailor-made projects.
Relationships are long-term and
intensive during the projects
Impossible
Product
business
Relatively stable relationships with
customers. The company has
productised its knowledge.
Standard products / components.
Traditional mass-market
company. No face-to-face
connection with the
customers. Customer
feedback and surveys
guide the company.
University of Jyväskylä
SB Program
Different forms of collaboration between
companies
Transaction
Consecutive
transactions
Long-term
Customer
relationship
Partnership
Strategic
alliance
Networked
organisation
Vertical
integration
University of Jyväskylä