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The Challenges of Becoming a Software Company

By May 2, 2016Article

Since Jeff Immelt, the CEO of GE, first proclaimed that every industrial company will become a software company, a widening array of enterprises have begun to move down this path. However, becoming a software company takes a lot more work than just hiring a bunch of good software developers or hosting the software in the cloud. It requires a new way of thinking about what it takes to be a successful software company. 

Major enterprises have been employing software developers to build internal custom applications for a long time. Many have been proud enough of their internal software development skills to share some of their results with the outside world. For instance, Capital One recently open sourced its internally developed Cloud Custodian AWS resource management tool

Now these enterprises are exploring ways they can commercialize their internal software development skills to reposition themselves in the marketplace. But before they make too big a jump in this direction, these companies should take a good look at the serious challenges that established software companies are facing in today’s rapidly changing marketplace. 

In the old days, independent software vendors (ISVs) built their businesses during a period when the rate of change was far slower than we experience today. ISVs faced far fewer competitors and had the luxury of responding to customer demands at their own pace. With limited competition, customers couldn’t demand more user-friendly applications or new software innovations on a more regular basis. And the burden of making the software work ultimately fell in the laps of the customer, not the ISV. 

The advent of Software-as-a-Service (SaaS) fundamentally changed this equation. SaaS made it easier for customers to adopt applications and abandon them if they failed to meet their needs. This placed greater pressure on ISVs to continuously enhance their software functionality and ensure the success of their SaaS solutions. 

SaaS also changed the packaging and pricing of software. It opened the door to new software subscription, consumption and shared services pricing models. Traditional license fees and usage controls gave way to a bevy of new software monetization alternatives. 

The success of SaaS also fueled the growth of Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS). SaaS, IaaS and PaaS formed the cornerstones of the pay-as-you-go cloud computing marketplace. And as the cloud industry evolved, the range of cloud services also expanded. 

Throughout the rapid evolution of the cloud industry, the range of software pricing and packaging schemes also evolved. Simple three-tier options are no longer sufficient to meet the needs of an increasingly demanding customer base. Personalization, customization and competition have raised the stakes. 

Software is also at the heart of the digitalization process that is transforming every industry. In every one of these cases, change is being powered by software. As Marc Andreessen suggested in his landmark essay in The Wall Street Journal nearly five years ago, “Why Software Is Eating the World,” companies are embedding software everywhere to redefine the nature of existing products and services and enable businesses to create a new generation of software-enabled products and services. 

This new generation of software-enabled products and services must be packaged and priced to reflect a new layer of value. The new value equation is based on the product/service connectivity, data analytics and intelligence. The new value equation also must take into account the need to change the software packaging and pricing quickly to respond to an increasingly dynamic market. 

Given the new software realities, businesses seeking to recast themselves as software providers must be prepared to do more than just create an attractive environment for software developers. They must be able to convert their internal software skills into external software monetization machines. 

Here are a few issues they’ll have to consider to be sure their company is ready to make this leap. 

  • First, they must determine what kind of software architecture is best suited to appeal to their target customers. Will a virtualized or multitenant architecture be best?
  • Next, they must adopt the appropriate software delivery model to make it easiest for customers to acquire and access the application. Will public or private cloud services be appropriate?
  • How should the software be packaged and priced? Should it be a subscription, consumption or shared services model? Will the company be able to manage a variety of monetization methods on-demand?
  • What kind of go-to-market model is necessary to successfully sell the software solution? And what kind of customer support is required to ensure customer success? 

Every business that wants to become a software company must answer these and many more questions before they can develop software solutions that will satisfy customers’ escalating expectations, keep pace with intensifying competition and be recognized as a truly differentiated and compelling commercial success.

Jeffrey Kaplan is the managing director of THINKstrategies, founder of the Cloud Computing Showplace and host of the Connected Cloud Summit executive forum series. He can be reached at









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