From Software as a product to Software as a service

This is a reflection I’ve done as an assignment for a class I am taking at Karlstad University on Service Innovation.

How does the shift to service dominant logic affect the software industry? Is it possible for the software giants to provide value in use instead of value in exchange? How can they bring innovation to their customers and how do they work with networks to do so?

This text examines how service dominant logic is changing how software vendors are approaching their business, their partners and their customers.

The force in

In 1999 SalesForce.Com declared “The end of software”. What they really meant was “The end of software as a product”. Since then the software industry has increasingly moved towards providing their software as a service and customers are applauding this shift.

This makes business push software companies to deliver a higher value faster. They expect new features, new services and new value without the requirement of running IT-projects.

All the major software vendors have had to adapt and are now focusing on providing the function, not the binary bits. Which gives their customers value in use.

Enter software as a service

SalesForce.Com is a pioneer in providing software as a service. In the late 90’s they had, correctly, identified that the real value to their customers where not the product but the functionality, the use. They also identified that CRM is moving at a high pace, innovation is happening all the time and it is hard for companies to keep up. The CEO Mark Benioff’s vision is to help their customers to transform into, what he calls, “a customer company”. Clearly using their software as just the platform, a piece in the service chain, to help their customers achieve their end goals.

There are several examples of this today. Companies like Adobe with Creative Cloud – Creativity as a Service, Amazon with infrastructure as a service – Hardware as a service, and Microsoft who has set out to deliver the complete IT as a Service experience to their customers.

Microsoft has changed their business strategy and today their mantra is “lead with cloud” which is an IT synonym for delivering as a service. For them it started delivering infrastructure for web sites as a service in 2008 and today they are offering their complete office suite and Microsoft Dynamics CRM as online services on top of a complete stack of infrastructure services. This strategy is transforming the company not only in how they deliver the software, but also how they recognize value for their customers.

Microsoft is transforming their value metrics from value in exchange to value in use. During their fiscal 2015, sales will no longer be measured in sold licenses but in the extent their customers uses their software.

To achieve this, they are reaching out to their network of partners to find innovative solutions for their customers on top of their service offerings. Avanade is an example of a partner that is doing this together with Microsoft and their customers. Partnerships that has created business innovations like the connected fitting room and predictive health analytics using Microsoft’s software.

The new norm.

Some critics claim that this is just a different packaging. That the software companies are still thinking in terms of products and that the addition of value in use is limited.

Microsoft’s shift to metrics based on usage and the vision of SalesForce.Com CEO Marc Benioff clearly shows that this is much more than just a shift in packaging.

This is a shift in business models for software companies to adapt a service dominant logic over a goods dominant logic.

It is quite clear that software companies are thinking more in terms of service then products. There are several reasons why we are seeing this shift but the common theme for them all is that business wants to see value in use of their IT investments and have no interest in running costly IT projects without predictive results.

It is also quite clear that they will not be able to deliver on this shift by themselves. To understand what services to deliver and to understand what value can be realized, they need to partner with others.

This shift has been more rapid the last few years and in a few more we will have seen a large portion of the software industry transformed to a truly service dominant industry.

Read more:
Digital Innovation and the Bear Experience (blog post)