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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
SB Program
General characteristics of software
generations from the viewpoint of
marketing by Autere, Lamberg & Tarjanne, 1999
Software The buyer Acquisition Sales Role of
generation method method marketing
Central Centralised IT- In-house Development Nearly non-
computer unit development decides who gets existent
software the next SW
Minicomputer (Company’s) Project Direct sales Supports and
software unit’s IT- delivery compliments
department sales
PC and client- Unit- division-, Software Sales channel Equal to sales
server –software or organisation product
management
Open network Consumer Web-based Direct sales More important
software market service combined with than sales
sales channels
University of Jyväskylä
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
Horisontaali-
markets
markkinat
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, cross-
industry, or mass-software
University of Jyväskylä
SB Program
Example of a value chain
End-user
organization
Application software Application service
supplier provider (ASP)
System
integrator
Infrastructure Infrastructure service
software supplier 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
9. Handset
Co 1. Co 2. Co 3. Co 4. Co n. Vendors
6. Tools & Software Providers
10. Private
customers
1. Content -
Creators /
Holders of 8. Networks Access &
5. Gateway
Rights Service Providers
Providers
2. Content 3. Service
Providers Bundlers & Packagers
4. Value Added 7. Infrastructure
Service Providers Vendors
Address DB etc.
Standardization Research Institutes
Effectors: Organizations and Universities
Venture Capitalists
University of Jyväskylä
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 knowledge-
intensive products and companies
1. Uncertainty is involved with the acquisition and creation
of knowledge
2. 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)
3. Minimal cost for the copying and transferal of knowledge
(explicit knowledge)
4. 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
- secrecy is often the only way (how efficient is it?)
6. Company knowledge (tacit knowledge)
- difficult to copy or imitate, company-specific and difficult to
replace
7. 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
- producers are “locked” into their own history, specialisation is
important
9. The value of a product is difficult estimate before its use
10. Packaging knowledge – problem
- Why would you pay for a knowledge you have already received,
why would you pay, if you don’t know what you will get
11. “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 Mass marketing
marketing
World view Controlling a portfolio of customer Controlling a portfolio of
relationships products
Most central Building commitment, personal 4P = Products, Promotion,
concepts of relationships and interaction Price and Place
marketing
Identification of In cooperation – identification is Market surveys – companies
customer needs done as both parties learn from seek to answer to identified
each other needs
Activity Both parties are active and take Companies must find the
initiative customers
University of Jyväskylä
SB Program
Customer relationship and mass
marketing cont.
Customer relationship Mass marketing
marketing
Starting Concentrates on business Selection of products /
international relationships with other (active) markets, definition of market
business companies goals, entry & marketing plan
Differentiation Differentiating customer Differentiating products
relationships
Advertising Does not have great significance An important factor
Interaction with Large, the company is willing to Small – company’s own
customer negotiate on its short term goals to short term goals are primary
meet the long term goals
University of Jyväskylä
SB Program
Typology of SW companies
Customer relationship Mass marketing
marketing
Tailoring / Traditional Finnish company, Impossible
professional Artifacts are tailor-made projects.
services Relationships are long-term and
intensive during the projects
Product Relatively stable relationships with Traditional mass-market
business customers. The company has company. No face-to-face
productised its knowledge. connection with the
Standard products / components. customers. Customer
feedback and surveys
guide the company.
University of Jyväskylä
SB Program
Different forms of collaboration between
Transaction companies
Consecutive
transactions Long-term
Customer
relationship
Partnership
Strategic
alliance
Networked
organisation
Vertical
integration
University of Jyväskylä
