1. (c) Veikko Seppänen, Winter 20031 Understanding strategic changes in software businesses: application development, system integration or customer service provisioning? Veikko Seppänen University of Oulu Veikko.Seppanen@oulu.fi

2. (c) Veikko Seppänen, Winter 20032 ICT industries are emerging: 1 Source: Baldauf, L., Lovejoy, M., Karesto, J., Paija, L. 2001. Global Networking in Wireless Teletechnology Business. Tekes Technology Review 114/2001. ?

3. (c) Veikko Seppänen, Winter 20033 ICT industries are emerging: 2 Information content & publishing technology Software technology Electronics technology CONTENT INFORMATION TECHNOLOGY TELECOMMUNICATIONS Electrotechnology Enabling technologies Application tools Applica tion tools ICT OTHER APPLICATIONS FROM ELECTRIC AND ELECTRONICAL TECHNOLOGIES TELECOMMUNICATION APPLICATIONS INFORMATION TECHNOLOGY APPLICATIONS DIGITAL COMMUNICATION APPLICATIONS

4. (c) Veikko Seppänen, Winter 20034 And so are other industries, too ”Hard” industries ”Core” industry ”Soft” industries”Media” industries

5. (c) Veikko Seppänen, Winter 20035 But how – from what to what? 1.Technologies to functionalities 2.Vertical products to horizontal platforms 3.Closed specifications to open standards 4.Isolated services to interoperability 5.Product development to system integration 6.Software products to software-as-service 7.Purchasing of licenses to pay-if-you-wish

6. (c) Veikko Seppänen, Winter 20036 1. Technologies vs. functionalities Technologies are changing to functionalities –Technologies + applications vs. functionalities –Technology diffusion simplified: One technique + implementing technology One technology + first few applications One technology + many applications Many technologies + many applications Functional needs markets emerge What software-enabled functions to serve?

7. (c) Veikko Seppänen, Winter 20037 Technical diffusion simplified Source: www.chasmgroup.com; Figure by: Atte Kinnula 1000 ideas 100 projects 50 no-go’s 1 leading solution 10 profitable businesses

8. (c) Veikko Seppänen, Winter 20038 And what to watch Source: www.chasmgroup.com; Figure by: Atte Kinnula

9. (c) Veikko Seppänen, Winter 20039 2. Vertical vs. horizontal Vertical products incorporate everything –Technologies + functionalities + applications –Difficult to cover the entire value chain Horizontal platforms – successive layers –Technology platforms fit on top of each other –Product lines cover intended applications –Service architectures package functionalities What software/system platforms to build?

10. (c) Veikko Seppänen, Winter 200310 Control of diversification? Messerschmitt, D.G., Szyperski, C. 2001. Industrial and Economic Properties of Software: Technology, Processes, and Value, University of California at Berkeley Computer Science Division Technical Report UCB//CSD-01-1130, Jan. 18, 2001. http://divine.eecs.berkeley.edu/~messer//PAPERS/01/Software-econ/

11. (c) Veikko Seppänen, Winter 200311 Cf. Open Mobile Alliance Source: Nokia http://www.openmobilealliance.org/

12. (c) Veikko Seppänen, Winter 200312 3. Closed vs. open specs Closed specs aim at vertical markets –Innovators attempt to cover entire solutions –Still a valid approach in niche markets Open standards create horizontal markets –Standardization of basic functionalities –Competence over technical implementations –Competence over biggest application segments How to ensure open standards for software?

13. (c) Veikko Seppänen, Winter 200313 Example – software marketplace

14. (c) Veikko Seppänen, Winter 200314 Example – WSI/WWRF

15. (c) Veikko Seppänen, Winter 200315 4. Isolation vs. interoperability Isolated services based on vertical products –Broken or short value chains result –Product silos developed side by side Interconnectivity of products is not enough –Standardization of product interfaces vs. –Interplay of functionalities for e2e services Standards for service enablers, architectures How to build interoperable services?

16. (c) Veikko Seppänen, Winter 200316 Access to interoperability Mobile terminals Sensors, Actuators Embedded servers Network servers Home Automation Logistics Telematics … Infotainment Entertainment Industrial Automation Applications PAN... LAN... WAN

17. (c) Veikko Seppänen, Winter 200317 5. PD vs. SI Product development is still required –Productization ensures readiness for delivery –Products used to partition horizontal markets –Glue products needed to realize interoperability What must be integrated to create systems? –Technologies, functions, applications? –How to prevent losing skills related to parts? System integrators – ruling companies?

18. (c) Veikko Seppänen, Winter 200318 Hardware becomes affordable Advantech card-PC430 € PC/104 PCMCIA-adapter170 € 50W power supply110 € MBPC-box (card-PC)70 € 64MB SO-DIMM memory30 € 64MB Compact Flash80 € BT-Card230 € Total1140 € Fall 2001: Embedded Wireless Server HW

19. (c) Veikko Seppänen, Winter 200319 And software becomes free? http://www.completelyfreesoftware.com/index_all.html

20. (c) Veikko Seppänen, Winter 200320 Idealised SI-driven value chain Messerschmitt, D.G., Szyperski, C. 2001. Industrial and Economic Properties of Software: Technology, Processes, and Value, University of California at Berkeley Computer Science Division Technical Report UCB//CSD-01-1130, Jan. 18, 2001. http://divine.eecs.berkeley.edu/~messer//PAPERS/01/Software-econ/

21. (c) Veikko Seppänen, Winter 200321 Vs. real-life business webs Tapscott, D., Ticoll, D., Lowy, A. 2000. Digital economy: harnessing the power of business webs. Harvard Business School Press. ASPs, ISPs Integrators Vendors End customers

22. (c) Veikko Seppänen, Winter 200322 Network management http://www.3csoftware.com/careersMarket.html

23. (c) Veikko Seppänen, Winter 200323 Integrators need to acquire parts

24. (c) Veikko Seppänen, Winter 200324 And manage system platforms http://www.celesta.com/products.html

25. (c) Veikko Seppänen, Winter 200325 Also as part of products Source: www.nokia.com

26. (c) Veikko Seppänen, Winter 200326 Vendors need to partner!

27. (c) Veikko Seppänen, Winter 200327 But with which channel? Integration of offering and channel

28. (c) Veikko Seppänen, Winter 200328 Business vs. channel simplified Industrial End Customer Industrial End Customer SW Company SW Company SW company Customized software Packaged software SW Development SW Product Distributor Systems Integrator Systems Integrator Industrial End Customer Industrial End Customer Industrial End Customer Industrial End Customer Source: Sallinen 2002

29. (c) Veikko Seppänen, Winter 200329 Change of channel use? 14 17 39 46 83 0102030405060708090 Other OEM Original Equipment Manufacturing SI System Integrator VAR Value Added Reseller Direct Sales % respondents ”Alone” ”Through integrator” ?

30. (c) Veikko Seppänen, Winter 200330 6. Software-as-service In the nineties sofware packets were sold –Software product industry is still very big – Software use over Internet is still modest Cf. the popularity of ASPs over software licenses In the future software access is being sold –Access selling leads to service provisioning –Open source service provisioning? Sofware access is critical for services

31. (c) Veikko Seppänen, Winter 200331 Justification of the service model http://www.business2.com/articles/web/0,,15025,FF.html

32. (c) Veikko Seppänen, Winter 200332 European software markets 2001 source: http://www.cespri.uni-bocconi.it/essy/steinmu3.PDF

33. (c) Veikko Seppänen, Winter 200333 7. Licenses vs. usage fees? Digital rights management is a challenge –Licenses have ensured usage rights, earnings –Internet has hit hard copyright businesses – Digital content is bound to become very cheap New business models are desperately needed! Pay-per-use vs. pay-if-you-wish? – Service providers trust on organized markets Software must be cheap, but will it be free?

34. (c) Veikko Seppänen, Winter 200334 Traditional market segments Source: Hoch et al. 2000, Secrets of Software Success

35. (c) Veikko Seppänen, Winter 200335 New business triangle? Vendors System integratorsCustomer service providers E.g. software companies End customer E.g. IT and telecom companies Niche offerings System offerings E.g. operators, ASPs, ISPs Support offerings Build? Buy? Take?

36. (c) Veikko Seppänen, Winter 200336 Business engine simplified

37. (c) Veikko Seppänen, Winter 200337 Missing viewpoint: the buyer!

38. (c) Veikko Seppänen, Winter 200338 Vs. software supply typology Source: Sallinen 2002

39. (c) Veikko Seppänen, Winter 200339 How to help software buyers? http://www.sei.cmu.edu/arm/acq.home.html

40. (c) Veikko Seppänen, Winter 200340 Example 1: teach them?

41. (c) Veikko Seppänen, Winter 200341 Example 2: SA - CMM http://www.sei.cmu.edu/ arm/SA-CMM.html

42. (c) Veikko Seppänen, Winter 200342 Example 3: purchasing process

43. (c) Veikko Seppänen, Winter 200343 Summary Software business opportunities –Software sells much as part of platforms –Software may still sell as application products –Software sold as services – who will pay? –Systems are being sold by business consortia How to develop sellable functionalities? –Who needs software for what: how to help customers making money by using software?

44. (c) Veikko Seppänen, Winter 200344 Literature Autere, J., Lamberg, I., Tarjanne, A. 1999. Ohjelmistotuotteilla kansainväliseen menestykseen. Toimialan kehittämistarpeet ja toimenpide-ehdotukset. Tekes, Teknologiakatsaus 74/99. (in Finnish) Luomala, J., Heikkinen, J., Virkajärvi, K. Heikkilä, J., Karjalainen, A., Kivimäki, A., Käkölä, T., Uusitalo, O., Lähdevaara, H. 2001. Digitaalinen verkostotalous. Tekes Teknologiakatsaus 110/2001. Nukari, J., Forssell, M. 1999. Suomen ohjelmistoteollisuuden kasvun strategia ja haasteet. Tekes, Teknologiakatsaus 67/99. (in Finnish) Seppänen, V., Käkölä, T., Pitkänen, O., Sulonen, R., Sääksjärvi, R. 2001. Ohjelmistoalan tutkimustoiminta Yhdysvalloissa. Tekes Teknologiakatsaus 109/2001. (in Finnish) Shapiro, C., Varian, H. 1999. Information rules. A strategic guide to the network economy. Harvard Business School Press. 352 s. Tapscott, D., Ticoll, D., Lowy, A. 2000. Digital economy: harnessing the power of business webs. Harvard Business Scool Press.

45. (c) Veikko Seppänen, Winter 200345 Literature Cusumano, M.A., Selby, R. (Contributor) 1995. Microsoft Secrets: How the World's Most Powerful Software Company Creates Technology, Shapes Markets, and Manages People. Hoch, D.J., Roeding, C.R., Purkert, G., Lindner, S.K., Müller, R. 1999. Secrets of Software Success. Management Insights from 100 Software Firms around the World. Harvard Business School Press, Boston. 309 p. Jacobsen, K., Paulin, W.L., Vurpillat, V.V., Nukari, J., Peltola, E., Saukkonen, J. (toim.) 2001. Launching Your Software Business in America A Handbook for Finnish Entrepreneurs. Tekes, Helsinki. 218 s. Rajala, R., Rossi, M., Tuunainen, V.P. 2001. Software Business Models. A Framework for Analyzing Software Industry. Tekes technology Review 108/2001. Tekes, Helsinki. 76 s.

46. (c) Veikko Seppänen, Winter 200346 Literature Christensen, C.M. 1997. The Innovator’s Dilemma. When New Technologies Cause Great Firms to Fail. Harvard Business School Press, Boston, MA. Messerschmitt, D.G., Szyperski, C. 2001. Industrial and Economic Properties of Software: Technology, Processes, and Value, University of California at Berkeley Computer Science Division Technical Report UCB//CSD-01-1130, Jan. 18, 2001, and Microsoft Corporation Technical Report MSR-TR-2001-11, Jan. 18, 2001. (available at http://divine.eecs.berkeley.edu/~messer//PAPERS/01/Software-econ/) Moore, G. A. 1991. Crossing the Chasm. Marketing and Selling High-Tech Products to Mainstream Customers. Harper Business. Moore, G. 1998. Inside the tornado. Capstone Publishing, Oxford, UK.

47. (c) Veikko Seppänen, Winter 200347 Literature Hamel, G., Prahalad, C.K. 1994. Competing for the future. Harvard Business School Press, London. Meyer, M.H., Lehnerd, A.P. 1997. The power of product platforms. Building value and cost leadership. The Free Press, New York. Niemelä, E., Kuikka S., Vilkuna, K., Lampola, M., Ahonen, J., Forsell, M., Korhonen, R., Seppänen, V. Ventä, O. 2000. Teolliset komponenttiohjelmistot. Kehittämistarpeet ja toimenpide-ehdotukset”. Tekes, Teknologiakatsaus 89/2000. Niemelä, E., Seppänen, V. 2000. Kaupalliset ohjelmistokomponentit avuksi. Tuotelinjasta tehoa ohjelmistokehitykseen. Prosessori, marraskuu 2000, pp. 93-96. Sanderson, S.W., Uzumeri, M. 1997. The innovation imperative. Strategies for managing product models and families. Irwin Professional Publishing, Chicago. Seppänen, V., Helander, N., Niemelä, E., Komi-Sirviö, S. 2001. Towards original software component manufacturing. Technical Research Centre of Finland, VTT Research Notes 2095. Sääksjärvi, M. 1998. Tuoterunko. Uusi ajattelu ohjelmistotuotteiden strategisessa kehittämisessä. Tekes, teknologiakatsaus 62/98.

48. (c) Veikko Seppänen, Winter 200348 Veikko Seppänen, Dr. Econ, Dr. Tech Professor (part-time) University of Oulu Veikko.Seppanen@oulu.fi gsm 040-344 2488 www.oulu.fi VP, Elektrobit Software Elektrobit Ltd. Veikko.Seppanen@elektrobit.fi www.elektrobit.fi Contact information