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Will most software firms ultimately become service firms then? An obvious question. Cusamano believes so. "Companies could decide to give away their product for free. They may not want to charge a licence fee. They may simply have a subscription model and make their money from servicing and maintaining the product," he explained.
Software has been commoditised, he reasoned. This implies that the customer will not be ready to pay much for software. In fact, he may want it free. "Open source and free software will prove to be nightmares for product companies. However, IT product companies will get their revenue from the services and maintenance streams," he said. |
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| Take the example of Siebel (to be devoured by Oracle), a leader customer relationship management (CRM) software vendor. With enterprise resource planning (ERP) vendors bundling CRM in their packages, Siebel's product revenue was bound to be hit. Service and maintenance revenues are what's kept it alive. In 1995, its product revenues amounted to 95 per cent of the topline. It reduced to 55 per cent in 2001, noted Cusamano. |
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| Besides, if you want to be a 100 per cent product company, you should have a capital of around $ 400 million since you will need adequate money for R & D and sales and marketing to compete with other players. There are just five or six 100 per cent pure software product players in the world today, he notes. Cusamano adds that "platform" companies like Microsoft and Adobe are exceptions to this trend. |
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| He advised Indian companies to "differentiate your services business and become hybrid at the least to stave competion." He urged them to develop more Indian-made products with a view to generate license fees and service and maintenance revenues. "Also think about R & D in the services arena," he exhorted. |
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| We are already seeing the emergence of a lot of "hybrid" solution companies (deriving revenue from the product as well as service streams) as Cusamano terms them. A good case in point is IBM where the services' revenue has tripled as compared to its product revenue. |
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| IT product companies have standardised offerings. They are finding it increasingly difficult to acquire new customers and new contracts. So they have to rely on services and maintenance. |
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| Hybrid companies have a more stable business model. Companies are also already "servitising" their products (such as software as a service -- web services -- and software on demand). They will learn how to "productise" their services, thereby possibly creating two organisations in one such as Oracle and SAP. |
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| While in 1990, 30 per cent of the companies (listed on the US stock exchange) were 100 per cent software product companies, their number dwindled to 15 per cent by 2004. |
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"Services will be the graveyard of all companies that can't compete". Referring to this quote of Sun Microsystems CEO Scott McNealy, Cusamona asserted that "we can see some evidence of this already happening".
It's time for a rethink. |
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