Software, the viral business


As the software part of more and more products becomes the most important part of the customer experience and the value proposition, software businesses, with their superior knowledge of software business models, are well placed to take over more and more “classical” industries.

Recently, the Financial Times reported that mobile phones with the Google Android operating system where probably going to be the most dangerous competition to Apple’s iPhone in 2010.

Notice something interesting? Nokia, Siemens, HTC, Sony-Ericsson, Motorola: all absent in this sentence (and mostly in the article).

The market of the profitable top-end smart phones is defined by reference to software and computer companies, not mobile phone companies.

This is an indication to a wider phenomenon. A very fast growing number of products, across markets, are becoming software-dependent. Software not only increases their functionality, interoperability, performance, and user experience. Software is gradually taking over the product, with the original hardware product becoming a commodity, and design and customer experience, as defined by software,  influencing the choice made by the client or customer.

Let’s take an example: who would trust a car manufacturer to understand the kind of customer experience necessary to market and sell the new functions offered by the customer-oriented software functions? Will car manufacturers understand the importance of integrating and interfacing different parts of software, to make them work smoothly towards the customer?

Just look at how difficult it is these days to make the hands-free console of a car work properly with your mobile phone. The reason is simple: car people don’t understand how important a good functioning hands-free is becoming in order to sell a car. After all, it’s only software, no?

The result will be that software companies, who are best placed to understand business models used by software, are in a very good position to take over any market where software becomes the dominant part of the value proposition on offer.

And with software spreading like a virus, affecting all and any products and businesses, this will be very good news for people understanding software business models, and the novelties brought about by business models such as open source, freeware, subscription, etc…

So don’t be surprised if in five years time, you will see iCars competing with OScars (Open Source cars) for the leading role in electrical cars, the only ones with a decent profit margin. While the traditional manufacturers will have to radically rethink their business models,  be relegated to providing commodity value (the box driving around the customer experience), or disappear altogether.

It goes without saying that a proper understanding of which intellectual property right drives and affects such business models will be key to success in these new developments.

Joren De Wachter


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