2. SB Program University of Jyväskylä 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

3. SB Program University of Jyväskylä 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

4. SB Program University of Jyväskylä General characteristics of software generations from the viewpoint of marketing by Autere, Lamberg & Tarjanne, 1999 Software generation The buyerAcquisition method Sales method Role of marketing Central computer software Centralised IT- unit In-house development Development decides who gets the next SW Nearly non- existent Minicomputer software (Company’s) unit’s IT- department Project delivery Direct salesSupports and compliments sales PC and client- server –software Unit- division-, or organisation management Software product Sales channelEqual to sales Open network software market ConsumerWeb-based service Direct sales combined with sales channels More important than sales

5. SB Program University of Jyväskylä 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

6. SB Program University of Jyväskylä 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)

7. SB Program University of Jyväskylä The market-driven planning framework Räsänen, 2001

8. SB Program University of Jyväskylä 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)

9. SB Program University of Jyväskylä 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

10. SB Program University of Jyväskylä One critical view…

11. SB Program University of Jyväskylä ….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…

12. SB Program University of Jyväskylä 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 Horizontal markets

13. SB Program University of Jyväskylä 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

14. SB Program University of Jyväskylä Example of a value chain Application software supplier Infrastructure software supplier System integrator Application service provider (ASP) Infrastructure service provider (ISP) End-user organization Value chain perspective was especially popular during early E-commerce research

15. SB Program University of Jyväskylä Example of a value chain

16. SB Program University of Jyväskylä 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)

17. SB Program University of Jyväskylä General characteristics of knowledge- intensive products and companies  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

18. SB Program University of Jyväskylä General characteristics cont…  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

19. SB Program University of Jyväskylä 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

20. SB Program University of Jyväskylä 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

21. SB Program University of Jyväskylä 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 significanceAn 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

22. SB Program University of Jyväskylä 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.

23. SB Program University of Jyväskylä Different forms of collaboration between companies Transaction Consecutive transactions Long-term Customer relationship Partnership Strategic alliance Networked organisation Vertical integration