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

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1 New Business Models for the Software Industry: The Emergence of Cloud Computing and Software Ecosystems Prof. Dr. Peter Buxmann Technische Universität Darmstadt Wirtschaftsinformatik Software Business & Information Management

2 8 June 2011 ProcessWorld 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 4. Outlook

8 June 2011 ProcessWorld 2011 3 Software Business Business Models and Strategies Software as

3 8 June 2011 ProcessWorld Software Business Business Models and Strategies Software as a Service Cloud Computing R&D and Innovation Management Cooperations, Mergers and Acquisitions

4 8 June 2011 ProcessWorld 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 4. Outlook

5 8 June 2011 ProcessWorld Software-Cluster Truffle Capital: Largest software cluster in Europe Supported by the German Federal Ministry of Education and Research (BMBF) Cluster goals Cooperation in research and practice Economic growth Emergent business software

6 8 June 2011 ProcessWorld 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 Systematic decision support

7 8 June 2011 ProcessWorld 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 4. Outlook

8 8 June 2011 ProcessWorld Business Models A firm s business model defines 1. Type of products and services offered 2. Market positioning within the industry value chain 3. Logic of profit generation

9 8 June 2011 ProcessWorld 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 4. Outlook

10 8 June 2011 ProcessWorld Type of Products and Services Offered Software is an intangible, digital good High first-copy costs Low reproduction costs High sunk costs Network effects

11 8 June 2011 ProcessWorld 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 4. Outlook

12 8 June 2011 ProcessWorld Positioning in the Software Value Chain Research Component Procurement 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).

13 8 June 2011 ProcessWorld 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 integration in the software industry

14 8 June 2011 ProcessWorld 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

15 8 June 2011 ProcessWorld Applications in Marketplaces Own calculations and data collection.

16 8 June 2011 ProcessWorld Vendor Multi-Homing Own illustration.

17 8 June 2011 ProcessWorld 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 4. Outlook

18 8 June 2011 ProcessWorld Software Product Pricing Parameters Price formation Price determination Payment flow structure Single payment Assessment base Number of pricing components Price discrimination 1st degree Product bundling Offer Dynamic pricing strategies Penetration pricing Lehmann, Buxmann (2009) Preisstrategien von Softwareanbietern, Wirtschaftsinformatik 51, p Degree of Interaction Recurring payments Usage dependent 2nd degree Product Follow-the-free strategy Combination Usage independent 3rd degree Degree of integration Skimming strategy Multidimensional Price level

19 8 June 2011 ProcessWorld Challenge: Pricing Models for Cloud Computing Software as a Service (Saas) Platform as a Service (Paas) Baun, Kunze, Nimis, Tai (2010), Cloud Computing: Web-basierte dynamische IT-Services, Springer, Heidelberg. Infrastructure as a Service (Iaas)

20 8 June 2011 ProcessWorld 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. (IDC, 2010)

21 Anteil SaaS-Lösungen fraction of SaaS solutions 8 June 2011 ProcessWorld Assessment Base in Software as a Service 80% 60% 40% 20% 0% 69% 53% 39% 22% 8% 9% usage-dependent nutzungsabhängig hybrid nutzungsunabhängig usage-independent Bemessungsgrundlage assessment base deutschsprachiger Germany Markt US-amerikanischer Markt Lehmann et al. (2010), Pricing Models of Software as a Service Providers: Usage- 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 Softwareas-a-Service. Ergebnisse einer empirischen Analyse mit Fokus auf nutzungsabhängige Preismodelle, in: Proceedings der Multikonferenz Wirtschaftsinformatik (MKWI 2010), Göttingen.

22 8 June 2011 ProcessWorld 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 4. Outlook

23 8 June 2011 ProcessWorld 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

24 Thank you! Prof. Dr. Peter Buxmann Technische Universität Darmstadt Wirtschaftsinformatik Software Business & Information Management

Myths of Cloud Computing Business Models, Security Issues and Insights from Empirical Surveys

Myths of Cloud Computing Business Models, Security Issues and Insights from Empirical Surveys 07.02.2012 Myths of Cloud Computing Prof. Dr. Peter Buxmann 1 Agenda Cloud Computing Basics Three Myths of