Corporate Trade-Up 40
ISVs must make the leap from software products to digital platforms
There is a lot that is already written on the impact of digital accelerating technologies on various businesses and industry sectors, and perhaps Digital Transformation is nearing the peak of inflated expectations in the classic Gartner hype cycle.
The question that is often not addressed is: What does it mean for software products, and even more, for software businesses (Independent Software Vendors)? As someone who has spent a lifetime in building software products, and growing software-driven businesses, I would like to share some insights on the concrete impact of digital disruption on ISVs, and outline my views on how they can transform to serve the new digital business landscape.
Growth strategies for ISVs in the pre-digital era
Traditionally, ISVs have built products to support:
- an industry vertical or domain
- a narrow function with in a domain
- a granular process (in support of a function)
As the complexity of business across major industry verticals such as Manufacturing, BFSI, Healthcare, and Logistics etc, increased exponentially, demand for enterprise class technology and business solutions skyrocketed, which led to the rise of ERP products and services. Large and complex ERP systems emerged to serve the needs of the entire enterprise ecosystem, across customers, partners, and employees. In the pre-digital era, ISVs followed conventional growth strategies, some of which are outlined below:
- In the startup phase, go to market with an innovative product or service with a niche solution for a market problem
- In the scale-up (growth) phase, adopt a product strategy that focuses on expanding the solution footprint
- At an enterprise level, use multiple strategies to drive product growth, including:
- Expanding geographic footprint
- Sustained and predictable product roadmaps to serve the continuously evolving market and customer needs
- Portfolio of professional services
To a large extent, traditional ISV business model was based on some combination of the above cited strategies. Typical product managers focused on serving the customer needs, and derived a competitive edge through a differentiated product or service.
Traditional ISVs focused on building products with generic features, that are sold as a common minimum denominator, often as on-premise licenses with large upfront costs. This led to a significant burden on the customer in terms of implementations and customizations.
Impact of digital accelerating technologies on ISVs
Over the past decade, a perfect storm of digital disruption has altered the technology and business landscape in unprecedented fashion. The impact of digital accelerating technologies such as SMAC, Internet of Things (IoT), Machine Learning (ML), and Artificial Intelligence (AI) etc. on ISVs can be summarized as below:
- Everything is digitized, and software is the primary driver connecting the smart products, devices, and services
- In this digital and connected landscape, every business is a digital business
- Every product is delivered and consumed as a service (SaaS and enterprise SaaS), and product has become a means to deliver a service
- Product focus must shift from a stand-alone mode to serve the needs of digital platforms (business and technology)
- Unprecedented consumerization and potential for mass adoption
- Digital speed and rapid pace of technology change and business model innovation
To sum up, digital accelerating technologies have set the stage for exponential change, and gave rise to new product and business models such as enterprise SaaS, and digital platforms, to serve the needs of the digital business ecosystem.
Digital platforms to serve digital businesses
As every business is becoming a digital business, there are two primary elements to the digital transformation process – business model innovation and technology innovation. In this landscape, it is no longer sufficient for ISVs to serve a specific function or process, and they should support the customers’ business model as well as technology innovation.
Digital businesses are dealing with the new reality that their entire ecosystem including the customers they serve, partners, employees, and a multitude of smart devices (things) is always connected, perhaps erasing the distinction between the physical and digital worlds forever. Even though the impact of this unprecedented level of connectivity will vary from industry to industry, most digital businesses will need multiple technology platforms and capabilities to serve the connected ecosystem, as shown in the image above.
Platform is a very widely used word, and interpreted to mean different things in diverse contexts. I personally prefer Gartner’s definition, as described in its influential report, Building a Digital Business Technology Platform:
“ Platform means that the area is built on services-based principles and architecture. The goal is to create an interoperable set of services that can be brought together to create applications, apps and workflows. This creates a symbiotic collection of technology capabilities and components that form a platform”
Key design considerations for digital platforms
The proliferation of smart devices, the connected landscape, and multitude of digital platforms needed to support a digital business ecosystem – collectively pose some unique challenges, and presents some opportunities for ISVs.
Designing and developing for a platform(s), instead of a standalone product is perhaps the biggest challenge confronting an ISV, which calls for a complete change in mindset towards product innovation. Building products for a platform calls for a services-first approach, and not an application mindset. ISVs must aim to support the digital platform with a set of loosely coupled services, which can be easily integrated and combined to create applications that serve the continuously evolving business models.
The digital business landscape offers an unprecedented opportunity to directly connect with the end user/consumer, and the potential to be a part of multiple business models and platforms, leading to new revenue streams. The huge cache of data generated by connected devices, and from real-time product usage, offers potential for decision support systems, new business models, and unexpected avenues for monetization.
To handle the challenges and leverage the opportunities of serving a digital business ecosystem, ISVs must consider some of the following design aspects in developing products and services for a digital platform:
- Support interoperability, integration, and data exchange through APIs and services
- Support omni-channel customer experience
- Support for smart devices and connected products
- Data capture and analytics for real-time decision support systems
- Scaling for mass market, security, privacy, and multi-device support
Product Managers must transform to become Business Model Managers
In one sense, the basic inputs for product management remained the same, i.e. business and regulation are drivers and technology is an enabler. But the key things that changed are the pace of change and the way the inputs are processed, which has a significant impact on the role of traditional product managers, as outlined below:
- One of the key distinguishing features of the digital platform landscape is the fact that, a product or service can be part of multiple platforms and business models; for ex: insurance businesses may use the same product in different ways to support different business models.
- The Business Model Manager (Product Manager in the digital era) must look beyond the direct users of the platform, think from an end-user perspective, consider continuously evolving business models, customer experiences, and multiple avenues for monetization.
- The Business Model Manager must be able to visualize his (product/service) business component as an integral part of his customer’s business model. Current business model tooling doesn’t often support this visualization.
- Business Model Manager must build products that support configurability, and personalization, to serve multiple business models as part of diverse platforms. This is where services-based thinking and mapping multiple customer journeys with minimum number of malleable services becomes indispensable.
- In a fast-paced and dynamic business environment, ISVs must adopt a sensible approach in developing future-proof products, by: building modular solutions, supporting diversity with open technologies, and willingness to abandon some services any time and build new services from scratch. i.e. sun-setting must be for services rather than a product or platform.
Product strategy in the digital era should be driven with a platform innovation (business and technology) perspective, and must have the agility and flexibility to support multiple business models as part of different platforms, and meet continuously evolving customer experiences. ISVs must be prepared to make the leap from building traditional software products to becoming complete digital platform vendors.
By Steven ten Napel on October 10, 2017