Develop Your Software Services Strategy and Business Model

Are you confused about the different software services strategy options available to you in today's software market? With Software-as-a-Service (SaaS), Service Oriented Architectures (SOA), IT as a Service ... it seems like everyone is moving the services direction.

So how do you determine which software business model is right for your product and target market? One-time software license? Subscription license? Software-as-a-Service (SaaS)? Software consulting? Component-level "mini" licenses? Or some combination?

We suggest a usage-model-driven analysis to develop the software services strategy and business model and find the optimal market fit for your software solution (see figure below). The critical inputs to your business model are: Software Usage Model, Customer Needs, Your Competition, and Your Skillsets and existing Partnerships. You can find more detail about each of these components below.

software services strategy usage model analysis

We are developing a modeling tool that can help in identifying the best business model, given some of the input parameters identified in the chart above. We will be uploading it to the site soon, so check back often and stay tuned. Please contact us if you are interested in learning more about this software services strategy tool, and you would like to be notified when it is available.

Or, if you prefer, click here to access our guidelines for developing your software business plan.


Usage Model

In many ways the usage model, or ways in which your software is used, is the most critical consideration when planning which software services strategy is right for your business model.

Who are your end users? And how do they use your software?

Are they "mobile" workers accessing the application remotely (eg, sales force). In this case, going a Software-as-a-Service (SaaS) route certainly makes sense (like salesforce.com) and will have minimal or no impact on your users.

Are they in-house "power users" with large amounts of data, lots of I/O, performance sensitive? These may make a SaaS model less likely, particularly if network latency sensitivity is an issue. Maybe a subscription service is an option? Or a selection of component-level licensing options?

And how is your application actually used? Are the users individuals... or do they need to work collaboratively, perhaps sharing sessions or data etc. Is real-time interactivity a critical factor or not? Again, the answers to these questions will determine your business model options.

You must also consider the technical usage characteristics of your application. Considerations such as network latency sensitivity, intensive data I/O, or tight integration with other applications, make a move to SaaS less likely.

Finally, think about whether there are other end users who could utilize your software, perhaps in a different way, if you offered it as a service? Sometimes new users and sales growth become more obvious when you step outside the box of "this is what my software is and does" and think about what could be if it was bundled, packaged or licensed differently. And do some up-front planning about additional value-add business software services that could be offered with the data and process aggregation that happens as a result of the hosted service model. This can ensure you maximize the customer value and hence price for your software service.

Your Customers

Another factor to consider is your customers' needs and requests. Are they asking for a different approach to utilize your software (ie, subscription or service)? Are they historically early adopters, taking risks with new technology or new approaches, or are they usually late adopters, letting other people try the "new things" before they jump on board?

Do they consider your software solution to be a competitive advantage to them? Is your software used with data they consider to be highly sensitive or proprietary? If the answer is yes to either of these questions, they might not be open to a hosted option such as SaaS.

Your Competitors

You should also keep a close eye on business model changes that your competitors might be making - and if they do make changes, see what works and what doesn't. What do your customers say about your competitors' software services strategy?

Don't assume that just because a competitor does something different that you should too - sometimes it's a good idea to let someone else test the water before you jump in, particularly if your customers typically fall in the late adopter category.

And don't forget to look for new competitors that you might not have thought of as competition before. New service-based models that meet your customers' needs may be offered by a competitor that is not even in your sights right now, if they didn't start out life as a licensed software vendor.

Your Skillsets and Partnerships

Remember that a switch in software services strategy will often mean a change in the skillsets required of you and your company, and/or the vendor partnerships that are needed. Do you already have the required skills and partners? If not, how hard would it be for your company to change?

Also, there is the question of financial or capital resources: if a change in business model will require investment in software product development, or marketing, or sales... do you have the resources to support that? Any change must be properly planned and funded, or it makes no sense regardless of the potential business opportunity at the other end.

And finally, always ask yourself whether you want to change (if change indeed seems to be the "best" software services strategy). It's important to continue to be passionate about what you do... if you're excited about interacting personally with users of your end-to-end software solution and customizing it to meet their needs, then perhaps SaaS isn't for you, even if there seems to be business opportunity there. As with all things, it is important to your own preferences into consideration when finalizing your software services strategy.

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