Emerging business models for software firms and the implications for competitive and organizational strategy

Abstract

The software industry is a very dynamic and innovative industry, which has been growing by leaps and bounds. The internet revolution has essentially redefined computing and communications in unimaginable ways. This has brought some innovative business models to the fore, which redraws the boundaries of software firms and fundamentally change the way they strategize, organize, and compete. The objective of this study is to look at the current developments in the software arena and come up with a generic model that captures the dynamics of the industry. Since the software products industry has witnessed a much greater portion of the action as compared to the software services domain, for the purposes of the study only the products domain would be considered. (It is argued later on, that with the advent of Open Source, even the product industry is likely to move to a services dominated paradigm). The study also aims to evaluate two dominant classes of business models, namely open source and proprietary business models and tries to come up with conditions in which one should be preferred over the other. The next step is to apply the knowledge of these models to see if a valuable prescription can be made for any of the software firms, as any model is worth only as much as its ‘value in application’. In essence, the study aims to cover: • Birds Eye Level: A generic model that captures the dynamics of product software domain • Top of Tree Level: An Evaluation of the two broad categories of open source and proprietary business models 4 • ‘Feet on Ground’ Level: What, if any, can be prescribed based on the generic model, by taking advantage of the open source and the proprietary philosophies that have been analyzed