COVER PAGE

Title : Business Models in IT Industry.

Subject : PDEL-I

Level / Semester : I / Feb 2010

Programme : MBA-FULL TIME

Subject Tutor : Mrs. Ashuti

Name of Student : Vivekanandan M

Student’s Registration Number : GPBL-B/F10/15

Date of Submission : Apr 12, 2010

Word Count : 1600 words

Word Limit : 2000 words

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Checklist

Students Name Vivekanandan M

Registration Number GPBL-B/F10/15

Date of submission of the Assignment 12/04/2010

Is the cover page in the correct format as indicated in the “Guidelines to writing Assignments”?

Yes

Have I done a complete spell-check of the Assignment? Yes

Have I done a complete word count for the Assignment? Yes

Does the table of contents include numbers? Yes

Are the pages numbered correctly? Yes

Are the figures numbered correctly? NA

Are the tables/charts numbered correctly? NA

Are the captions for the tables and charts proper? NA

Are the references/bibliography listed in the Assignment? Yes

Are the references cited correctly in the text? NA

All references material has been cited from the books & the University of Wales online library. Any other internet

source quoted is with the permission of the module tutor.

NA

Are the references in the text in the proper format as

indicated in the “Guidelines to Writing Assignments”

Yes

Has the soft copy of the Assignment been enclosed? Yes

Declaration:

All material written in this assignment is my own and I have not used any material, content or information of others claiming them to be mine. Wherever materials have

been used, proper citation has been done in the text. I am fully aware of the rules and regulations governing plagiarism. Should at any point of time my work be

suspected/investigated and established to have been plagiarized, I am aware of the consequences. I have read the Student’s Handbook in detail.

___________________

Signature of the student Date: 12/04/2010

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TABLE OF CONTENTS PAGE No.

Introduction to Business model 1

Introduction to IT/ITES Industry in India 1

Business Models in IT Industry 2

Need for innovative business models 6

Conclusion 7

Bibliography 8

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Introduction to Business Model

Business model for an organization describes how organizations create and deliver value to

their customer. Most common and known business model is shopkeeper model – setting up of

a shop close to the place where potential customers live. Some examples of business models

are - Auction business model, bricks and clicks business model, franchise, loyalty business

model, subscription business model etc.

For a start-up company to offer their innovation to their customers, it is important for them to

identify the right business model, which will create and deliver value to their customer.

Following are key components in a business model,

a. Value proposition – the value that the customer gets, in addition to the solution

provided for his business problem

b. Process – how the resources work to deliver value to the customer

c. Revenue generation – how the revenue is generated by the company

This report explains the various business model followed by the IT industry and the need for

looking at innovative business models for the growth of the IT industry.

Introduction to IT/ITES Industry in India

India being a low cost country, having huge educated talent pool and politically a peaceful

country has become the preferred destination for software services. Information Technology

(IT) industry offer both software and hardware development to the customers. It includes

software/hardware design, development, testing and maintenance. IT services also includes

development of IT infrastructure and management of those infrastructure. ITES refers to

Information Technology Enabled Services, which includes delivery of services using IT.

Business Process Outsourcing (BPO) falls under ITES segment. Other ITES service includes

– finance, HR, billing, call center, customer support, etc.

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Companies in IT industry can broadly be categorised into 2 segments,

a. Product development – Companies which develop software/hardware product and sell

it to the customers.

b. Services – Companies which offer consulting/professional services to their customers.

The business model is different for product development and services companies. Following

are some of the business models for IT product development companies,

a. Licensing model

b. Subscription based model

c. Royalty model

Following are some of the business models for IT services companies,

a. Time and Material

b. Fixed cost

c. Off Shore Development Center (ODC)

d. Delivery based model

e. Software As A Service (SAAS)

Following section explains in detail the various business models listed above.

Business Models in IT Industry

a. Business model for product development companies

Product development companies offer their innovation to their customers in the form

of software/hardware product. These products help their customer in solving their

business problem. Some examples of product development companies are – Microsoft

(develop software tools for application development), Mentor Graphics (develop

software tools for hardware design and validation). Application development

companies need software tools for developing applications and those applications can

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be sold to enterprise users. Examples for application development companies are

SAP, ORACLE and examples for enterprise users include – BHEL, Infosys.

Following are some of the business models for product development companies,

1. Licensing model

In this business model, companies develop products and sell the license to their

customers. The price of the product ranges between Rs: 10 to few Million. There

are various types of licenses to match the needs of various customers. Different

license model used by companies include – single user license, multi-user license,

user locked license, node locked license, floating license, volume based licensing,

fixed period license, evaluation license.

Example: Microsoft Windows 7 Operating System, Microsoft Office 2007, Adobe

Photoshop, Adobe Framemaker, etc..

2. Subscription based model

In this model, customers pay subscription fees to the company, to access their

product.

Example for this model is: start-up semiconductor design companies cannot afford

to purchase hardware design tools which costs few Million Dollar. In order to

make the company’s product accessible to such target customers, product

companies allow their customers to access their products for a limited period of

time for a subscription fee.

The key difference between fixed period license and subscription model is, in

fixed period license, the customer owns the product. After the fixed period, the

license expires, and the customer cannot use the product. If the customer wants to

use the product, he pays for another fixed period license (does not pay for the

product). In subscription model, the customer does not own the product, but uses

the product for a specific period by paying the subscription fee.

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3. Royalty model

In this model, company patents their innovation and gives exclusive rights for

their customers to use their patents in their product/service, for which the

customers pay royalty fee to the company.

Example for royalty model – royalty paid by OEM (original equipment

manufacturer) for using the software product in their equipment. Example of

OEM are car dash board manufacturers.

b. Business model for services companies

Service companies offer consulting/profession/other services to their customers. The

services offered include – new product development, build and test, packaging, and IT

infrastructure and maintenance.

In this competitive world, product companies are focused on their core competency

and does not want to invest money and resource in no core activities like –

maintenance, testing, packaging. So these activities are outsourced to service

companies. Service companies employ any of the following business models to work

with their customers:

1. Time and Material

In this model, the service provider offers their resources (skilled labours) to

dedicatedly work for the product company. In turn the product company pays

service fee for getting the service. In this model, it is the responsibility of the

product company to assign work/task to the resource. Periodically, the product

company pays service fee to the service provider for the work executed by the

resource.

Example: Indian IT companies like Infosys, Wipro, TCS use this business model

to offer services to their customer.

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This model is very popular for maintenance and enhancement related work. This

model is always advantage for service provider, as they will get the service fee

periodically – irrespective of the work done by the resource.

The disadvantage of this business model for Product Company is, sometime the

resource might not have any work, for which the product company has to pay

service fee to the service provider for the idle resource.

2. Fixed cost

In this model, the product company pays a fixed fee to the service provider. It is

the responsibility of the service provider to deliver the service to the company.

This model eliminates the disadvantages in time and material model for the

product company. This model is a challenging for the service provider. If the

service provider does not have the capability to create and deliver the service, then

the service provider shall incur a loss by executing such projects.

In this model, the risk of the project is transferred to the service provider.

3. Off Shore Development Center (ODC)

In this model, the service provider acts as an extension to the product company.

The service provider offers software engineering, maintenance and support

facilities to the product company. The service provider creates a team on behalf of

the product company.

This model is ideal for product companies which do not want to spend huge

money on the software engineering, maintenance and support facilities in their

country. To save money, product companies approach service provider to develop

a dedicated development center in low cost countries.

Example: ODC center established by Indian IT services companies for customers

like Cisco, etc.

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4. Delivery based model

This model is similar to time and material based model. The key difference is in

the payment of the service fee. The company pays the service provider for the

work delivered to the company. This eliminates the disadvantage of paying to an

idle resource.

5. Software As A Service

In this model software application is offered as a service to the customer. The

customer pays the service provider based on his usage. This model is also called

as “software on demand service”. The service provider purchases the necessary

hardware, software and application and offers the application as a service to the

customer over internet. In this model, the customer need not invest money in

acquiring hardware and software resources for his business.

Example: Web based sales force automation, web based CRM. SMEs can pay for

the hosted service and SME employees can use the application for their business

operations, without investing in hardware and software resources and need for a

dedicated resource for managing these IT resources.

Need for innovative business models

Top Indian IT companies have grown significantly over a period of time, employing more

than 0.1 million people in a company. The sales and profit growth of these IT companies

came by increasing the head count in the company. Now these companies have reached a

saturation point, beyond which they cannot increase the head count because of “economy of

scale”. To continue maintaining their top line growth, these IT companies has to increase

their profit without increasing the head count. So these service companies are working on

creating a new business model, which will help them grow non-linearly.

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Conclusion

It is important for any business to identify the right business model for their business. For

service providing companies to grow non-linearly with the head count, service providers can

explore new business models like royalty model, licensing model, which will help them to

deliver the service faster and cheaper to their customers.

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Bibliography

1. http://www.quickmba.com/entre/business-model/

2. http://en.wikipedia.org/wiki/Business_model

3. http://www.project-management-knowledge.com/definitions/t/time-material-tm-

contract/

4. http://en.wikipedia.org/wiki/Offshore_Development_Center

5. http://en.wikipedia.org/wiki/Software_as_a_service

6. http://en.wikipedia.org/wiki/Multi- licensing

7. http://en.wikipedia.org/wiki/Subscription_business_model

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Global warming is defined as the increase in the average temperature of earth surface. The major

reason for global warming is Pollution, (i.e) emission of carbon di oxide. Power plants which uses fossil fuel

to generate electricity, emits maximum carbon di oxide to the atmosphere. Automobiles using fossil fuel

pollute the atmosphere by emitting harmful gases like carbon di oxide, nitrous oxide. Other reasons for

pollution include, burning of oil during winter, deforestation and transportation industry (airways, railways

and roadways).

Effects of Global Warming:

Increase in earth surface temperature has impact on the following systems and the consequences have

chain reaction impact on its subsequent systems.

Glaciers

Weather

Weather

Business

Glaciers – Rise in temperature causes the glaciers to melt, resulting in increase in sea level. Increase in sea

level leads to flooding of land.

Mixing of pure water from melting glaciers with salty sea water alters the gulf-stream pattern which regulates

temperature.

Melting of glaciers alters the balance of eco system in the polar region which includes – animals, plants.

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