New Business Models for the Software Industry: The Emergence of Cloud Computing and Software Ecosystems

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Prof. Dr. Peter Buxmann

Technische Universität Darmstadt

Wirtschaftsinformatik | Software Business & Information Management http://www.is.tu-darmstadt.de

[email protected]

New Business Models for the Software

Industry: The Emergence of Cloud

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8 June 2011 | ProcessWorld 2011 | 2

Agenda

1.

Software Business

2.

Software-Cluster

3.

Business Models in the Software Industry

1. Type of Products and Services

2. Positioning in the Value Chain

3. Pricing and Profit Generation

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Software Business

Business Models and Strategies Software as a Service

Cloud Computing

R&D and Innovation Management

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Agenda

1.

Software Business

2.

Software-Cluster

3.

Business Models in the Software Industry

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Software-Cluster

Truffle Capital: Largest software cluster in Europe

http://www.truffle100.com/2010/software-clusters-in-europe.php

Supported by the German Federal Ministry of Education and Research (BMBF)

Cluster goals

 Cooperation in research and practice

 Economic growth

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Subproject Business Models

Situation Today

 No unified definition

 No unified formal specification

 Business models are hard to compare and to evaluate

Our Goal

 Formal definition and specification

 Establish comparability and evaluability of business models

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Agenda

1.

Software Business

2.

Software-Cluster

3.

Business Models in the Software Industry

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Business Models

A firm„s business model defines

1.

Type of products and services offered

2.

Market positioning within the industry value chain

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Agenda

1.

Software Business

2.

Software-Cluster

3.

Business Models in the Software Industry

1. Type of Products and Services

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Type of Products and Services Offered

Software is an intangible, digital good  High first-copy costs

 Low reproduction costs

 High sunk costs

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Agenda

1.

Software Business

2.

Software-Cluster

3.

Business Models in the Software Industry

2. Positioning in the Value Chain

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Positioning in the Software Value Chain

Research

_Procurement

Component

Development

Production

Marketing

Implementation

Education

Support

Maintenance

Operations

Replacement

Pussep, Schief, Widjaja, Buxmann, and Wolf

(2011), The Software

Value Chain as an

Analytical Framework for the Software Industry and Its Exemplary Application for Vertical Integration Measurement, in:

Proceedings of the 17th Americas' Conference on Information Systems (AMCIS 2011), Detroit (USA).

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Further Research Direction

Determine the degree of vertical integration in the software industry  Case studies with software firms

 Balance sheet analysis

Developing a model to determine the optimal degree of vertical integration Evaluating the impact of software ecosystems on the degree of vertical

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Software Ecosystems

A Software Ecosystem is a set of actors interacting in a shared market for software and services, often

underpinned by a common technological platform or market (Jansen, Brinkkemper, and Finkelstein, 2009) Software Ecosystems as a means to lower the degree of vertical integration

FaDOM: A software prototype for monitoring online marketplaces 30.06.2010 26.04.2010 13.07.2010 17.05.2010 20.09.2010 16.07.2010 29.10.2010

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Own calculations and data collection.

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Own illustration.

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Agenda

1.

Software Business

2.

Software-Cluster

3.

Business Models in the Software Industry

3. Pricing and Profit Generation

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8 June 2011 | ProcessWorld 2011 | 19 Lehmann, Buxmann (2009) Preisstrategien von Softwareanbietern, Wirtschaftsinformatik 51, p. 519–529.

Software Product Pricing Parameters

Price formation Assessment

base Price discrimination Product bundling Dynamic pricing strategies Price determination Degree of Interaction Offer Product Degree of integration Price level Penetration pricing Follow-the-free strategy Skimming strategy 1st degree 2nd degree 3rd degree Multi-dimensional Number of pricing components Usage dependent Usage independent Single payment Payment flow structure Recurring payments Combination

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Baun, Kunze, Nimis, Tai (2010), Cloud Computing:

Web-basierte dynamische IT-Services, Springer,

Heidelberg.

Challenge: Pricing Models for Cloud Computing

Software as a Service (Saas) Platform as a Service (Paas) Infrastructure as a Service (Iaas)

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Usage-dependent pricing in Software as a Service

“SaaS is hosted software based on a single set of common code and data definitions that are consumed in a one-to-many model by all contracted customers, at any time, on a pay-for-use basis, or as a subscription based on usage metrics.”

(Gartner, 2006)

“SaaS pricing is evolving toward true usage-based models. Most early examples of SaaS price on a fairly simplistic per-user per-month basis, sometimes with add-on costs for „extras‟ like mobile, storage, or advanced modules.”

(Forrester, 2010)

“With the footprint expansion of software as a service (SaaS) and advent of cloud computing, pay-per-use or utility-type models have become more of a possibility and reality.”

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8 June 2011 | ProcessWorld 2011 | 22 Lehmann et al. (2010),

Pricing Models of Software as a Service Providers:

Dependent Versus Usage-Independent Pricing Models, in: Proceedings of the 8th Conference on Information Science Technology and Management (CISTM 2010), Tampere.

Lehmann et al. (2010), Preisgestaltung für Software-as-a-Service. Ergebnisse einer empirischen Analyse mit Fokus auf nutzungsabhängige

Preismodelle, in: Proceedings der Multikonferenz

Wirtschaftsinformatik (MKWI 2010), Göttingen.

Assessment Base in Software as a Service

8% 39% 53% 9% 22% 69% 0% 20% 40% 60% 80%

nutzungsabhängig hybrid nutzungsunabhängig

A n te il S a a S -L ö s u n g e n Bemessungsgrundlage

deutschsprachiger MarktGermany US-amerikanischer MarktUS

hybrid usage-dependent usage-independent assessment base fraction of Saa S s olutions

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Agenda

1.

Software Business

2.

Software-Cluster

3.

Business Models in the Software Industry

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Outlook

Decision support in business model selection and evaluation

 Optimal make-or-buy strategies and degree of vertical integration

 Success factors in software ecosystems

 Successful pricing models in Cloud Computing and Software as a Service

Developing a software for business model generation and evaluation

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Thank you!

Prof. Dr. Peter Buxmann

Technische Universität Darmstadt

Wirtschaftsinformatik | Software Business & Information Management http://www.is.tu-darmstadt.de