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Software Product vs. Customer Project – Two Very Different Business Models Hans-Bernd Kittlaus InnoTivum Consulting November 2018

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Page 1: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

Software Product vs. Customer Project –Two Very Different Business Models

Hans-Bernd KittlausInnoTivum Consulting

November 2018

Page 2: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 2018

Hans-Bernd Kittlaus

• InnoTivum CEO, ISPMA Chairman

• SPM Management Consultant, Trainer, Coach, Author

• Certifications ISPMA SPM, Scrum CSPO, PRINCE2 Practitioner

• References Samsung, IBM, SimCorp, BearingPoint, Talend,

German Savings Banks, Postbank, AVL, Lufthansa Systems, e.a.

• Organizations

[email protected], www.innotivum.com

2

Chairman

Page 3: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 2018

ISPMA

Industry and Academia have joined forces

3

Page 4: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 2018

Hans-Bernd Kittlaus

• Publications

[email protected], www.innotivum.com

4

Page 5: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 2018

1. Standard Product vs. Customer Project Business

2. Everybody likes the mix ?

3. Maybe not in the long run

4. Macro-Economic View

5. Summary

Agenda

5

Page 6: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 2018

1. Standard Product vs. Customer Project BusinessService Definition

The Webster Dictionary differentiates:

• Useful labor that does not produce a tangible commodity (as in “professional services”)

• A provision for maintenance and repair (as in “software maintenance service”)

• The technical provision of a function through a software component that can be accessed by another software component, often over a network and executed on a remote server (as in “web services” or “Software-as-a-Service”)

Human

Human

Technical

6

Page 7: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 2018

1. Standard Product vs. Customer Project BusinessService - Product - Continuum for Software

Customer-SpecificServices

Multi-CustomerServices

PureProduct

Product-RelatedServices

Standard ProductComplete Offering

Service Offerings

CustomSoftwareDevelopment

CustomSoftwareMaintenance

Consulting

ReusableSoftwareComponents

ComputingCenterOutsourcing

SoftwareProductMaintenance

ProductTraining

LicenseSoftwareProduct(as it is)

SaaS / PaaS

Examples

Categories

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Page 8: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 20188

1. Standard Product vs. Customer Project BusinessSoftware: Service vs. Product Business

Service Business Product Business

Focus

Financialmodel

Price calculation

KPI

Market evaluation

Customer,Project

MarketProduct

Small investment,Low risk, Continuous moderate profit

Significant upfront investment, Higher risk, Potentially high profit

Cost-based (cost + margin), Existing software usuallyincluded

Value-based, Software product usually pricedseparately from services

Utilization, Average daily rate

Market share, Profit

Moderate Much higher

Page 9: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 20189

Conclusion of all the major B2B players who have both product and service business:

Strict separation of service and product business

Smaller B2B companies:

Often mixed approach

1. Standard Product vs. Customer Project Business

Page 10: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 2018

1. Standard Product vs. Customer Project Business

2. Everybody likes the mix ?

3. Maybe not in the long run

4. Macro-Economic View

5. Summary

Agenda

10

Page 11: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201811

B2B Software Products

• Customer: Wants standard product that fulfills all his specific requirements

• Vendor: Adaptation of standard product

B2C Software Products

• Customer: Limited expectation beyond standard

if standard is sufficiently attractive

• Vendor: Clear focus on standard and scalability

2. Everybody likes the mix ?

Page 12: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201812

• Configuration setting or changing parameters

• Composition adding or arranging components

• Customization adding or changing program or descriptive code

2. Everybody likes the mix ?Adaptability

Critical

• Non-invasive (through standard interfaces)

• Invasive (in the standard code)

Page 13: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201813

• Good approach from vendor perspective:

– Standard product

– Non-invasive customization as professional service paid separately

Update of standard product:

if upwards compatible: no effort

if not upwards compatible: requires changes to

customization as paid professional service

Customer expectation not fulfilled

2. Everybody likes the mix ?Customization

Page 14: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201814

• Individual customer requirements are implemented in the standard product (one or multiple customer-specific code bases)

• Usually with cost sharing (adds to maintenance fee)

Customer expectations are fulfilled

• Vendor advantages:

– Customers pay for (part of) product development effort

– Higher sales success

2. Everybody likes the mix ?Frequent Vendor Approach

Page 15: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201815

• Code quality and maintainability decreasing with growing number of customers and time

Becomes a problem for both vendor and customer

• Approach may work with 10 customers, but not with 1000

No scalability

• Approach not feasible with SaaS in multi-tenancy mode unless one common code base

Only as managed service (single tenant) at higher operations cost

No scalability

3. Maybe not in the long runLonger Term Consequences

Page 16: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201816

Most vendors try to adopt real standard product approach later

Difficult migration

3. Maybe not in the long runLonger Term Consequences

Page 17: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201817

3. Macro-Economic View

Page 18: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201818

• Europe has already lost the B2C platform war

• If we do not focus more on scalability in B2B we are going to lose the B2B platform war as well, e.g. IoT

3. Macro-Economic View

Page 19: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201819

4. Summary

• In-product customization initially looks tempting for both vendors and customers

• Significant negative long-term consequences for both

• Significant negative macro-economic consequences

Focus on scalability as early as possible

Page 20: Software Product vs. Customer Project – Two Very Different ... · Custom Software Development Custom Software Maintenance Consulting Reusable Software Components Computing Center

November 201820

Contact

Hans-Bernd Kittlaus, InnoTivum Consulting

www.InnoTivum.com

[email protected]

© Hans-Bernd Kittlaus, InnoTivum Consulting 2018

The material in this presentation is legally protected.

Any commercial use requires explicit written consent of

Hans-Bernd Kittlaus, InnoTivum Consulting.