The Changing Business of Software

In this talk, Michael Cusumano focuses on how both the enterprise and consumer software businesses have been changing over the past decade, building on observations made in his 2004 book, ‘The Business of Software’.

As documented in new research, a major change is the shift among software products-companies to a services and maintenance business. Another change is the increasing importance of non-traditional business models, where software products (or functionality once sold as products) is now offered as a service or as free to the end user and paid for indirectly through advertising or other revenue sources.

Part of the reason for this shift is the ageing of software companies and the saturation and commoditization of many product markets. Another factor is the platform shift to the internet and web technologies, which has increased demand for services or allowed the appearance of new business models.

Professor Cusumano recommends that product or technology companies develop a hybrid business strategy and focus on ‘productizing services’ as well as ‘servitizing products’. He also predicts a serious future battle between IT services businesses and software product companies as they fight for service revenues, and recommends that IT services companies place a new emphasis on services R and D and innovation.

The basis for these observations comes from a multi-year study through which we have compiled 10 or more years of annual financial data on publicly listed global software product firms (approximately 400) and IT services and computer hardware and telecommunications firms (approximately 500).