(c) Veikko Seppänen, Winter Understanding strategic changes in software businesses: application development, system integration or customer service provisioning? Veikko Seppänen University of Oulu

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

(c) Veikko Seppänen, Winter 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

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

(c) Veikko Seppänen, Winter 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

(c) Veikko Seppänen, Winter 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?

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

(c) Veikko Seppänen, Winter And what to watch Source: Figure by: Atte Kinnula

(c) Veikko Seppänen, Winter 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?

(c) Veikko Seppänen, Winter Control of diversification? Messerschmitt, D.G., Szyperski, C Industrial and Economic Properties of Software: Technology, Processes, and Value, University of California at Berkeley Computer Science Division Technical Report UCB//CSD , Jan. 18,

(c) Veikko Seppänen, Winter Cf. Open Mobile Alliance Source: Nokia

(c) Veikko Seppänen, Winter 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?

(c) Veikko Seppänen, Winter Example – software marketplace

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

(c) Veikko Seppänen, Winter 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?

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

(c) Veikko Seppänen, Winter 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?

(c) Veikko Seppänen, Winter 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

(c) Veikko Seppänen, Winter And software becomes free?

(c) Veikko Seppänen, Winter Idealised SI-driven value chain Messerschmitt, D.G., Szyperski, C Industrial and Economic Properties of Software: Technology, Processes, and Value, University of California at Berkeley Computer Science Division Technical Report UCB//CSD , Jan. 18,

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

(c) Veikko Seppänen, Winter Network management

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

(c) Veikko Seppänen, Winter And manage system platforms

(c) Veikko Seppänen, Winter Also as part of products Source:

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

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

(c) Veikko Seppänen, Winter 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

(c) Veikko Seppänen, Winter Change of channel use? Other OEM Original Equipment Manufacturing SI System Integrator VAR Value Added Reseller Direct Sales % respondents ”Alone” ”Through integrator” ?

(c) Veikko Seppänen, Winter 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

(c) Veikko Seppänen, Winter Justification of the service model

(c) Veikko Seppänen, Winter European software markets 2001 source:

(c) Veikko Seppänen, Winter 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?

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

(c) Veikko Seppänen, Winter 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?

(c) Veikko Seppänen, Winter Business engine simplified

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

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

(c) Veikko Seppänen, Winter How to help software buyers?

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

(c) Veikko Seppänen, Winter Example 2: SA - CMM arm/SA-CMM.html

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

(c) Veikko Seppänen, Winter 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?

(c) Veikko Seppänen, Winter Literature Autere, J., Lamberg, I., Tarjanne, A 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 Digitaalinen verkostotalous. Tekes Teknologiakatsaus 110/2001. Nukari, J., Forssell, M Suomen ohjelmistoteollisuuden kasvun strategia ja haasteet. Tekes, Teknologiakatsaus 67/99. (in Finnish) Seppänen, V., Käkölä, T., Pitkänen, O., Sulonen, R., Sääksjärvi, R Ohjelmistoalan tutkimustoiminta Yhdysvalloissa. Tekes Teknologiakatsaus 109/2001. (in Finnish) Shapiro, C., Varian, H Information rules. A strategic guide to the network economy. Harvard Business School Press. 352 s. Tapscott, D., Ticoll, D., Lowy, A Digital economy: harnessing the power of business webs. Harvard Business Scool Press.

(c) Veikko Seppänen, Winter Literature Cusumano, M.A., Selby, R. (Contributor) 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 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.) Launching Your Software Business in America A Handbook for Finnish Entrepreneurs. Tekes, Helsinki. 218 s. Rajala, R., Rossi, M., Tuunainen, V.P Software Business Models. A Framework for Analyzing Software Industry. Tekes technology Review 108/2001. Tekes, Helsinki. 76 s.

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

(c) Veikko Seppänen, Winter Literature Hamel, G., Prahalad, C.K Competing for the future. Harvard Business School Press, London. Meyer, M.H., Lehnerd, A.P 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 Teolliset komponenttiohjelmistot. Kehittämistarpeet ja toimenpide-ehdotukset”. Tekes, Teknologiakatsaus 89/2000. Niemelä, E., Seppänen, V Kaupalliset ohjelmistokomponentit avuksi. Tuotelinjasta tehoa ohjelmistokehitykseen. Prosessori, marraskuu 2000, pp Sanderson, S.W., Uzumeri, M The innovation imperative. Strategies for managing product models and families. Irwin Professional Publishing, Chicago. Seppänen, V., Helander, N., Niemelä, E., Komi-Sirviö, S Towards original software component manufacturing. Technical Research Centre of Finland, VTT Research Notes Sääksjärvi, M Tuoterunko. Uusi ajattelu ohjelmistotuotteiden strategisessa kehittämisessä. Tekes, teknologiakatsaus 62/98.

(c) Veikko Seppänen, Winter Veikko Seppänen, Dr. Econ, Dr. Tech Professor (part-time) University of Oulu gsm VP, Elektrobit Software Elektrobit Ltd. Contact information