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Software Product vs. Customer Project –Two Very Different Business Models
Hans-Bernd KittlausInnoTivum Consulting
November 2018
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
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Chairman
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ISPMA
Industry and Academia have joined forces
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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
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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
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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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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
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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
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
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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 ?
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• 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)
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• 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
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• 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
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• 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
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Most vendors try to adopt real standard product approach later
Difficult migration
3. Maybe not in the long runLonger Term Consequences
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3. Macro-Economic View
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• 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
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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
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Contact
Hans-Bernd Kittlaus, InnoTivum Consulting
www.InnoTivum.com
© 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.