Products Versus Services
The first thing software entrepreneurs should understand is the difference and the interrelationship between products and services business. The software product business is about selling licensed packages to customers. These products help solve a user pain and have potential for growth and profits. One advantage of starting up in this direction is the ability to attract stock market investors and venture capitalists for funding. This business also enjoys enormous economies of scale in selling multiple copies of the same software. The downside of creating products is that software sales are subject to fluctuations. Sales will drop drastically in economic recessions.
The service business involves creating applications for clients that tailor to their business needs. This includes the maintenance of software products they have purchased before. One advantage of service business is that long-term customer contracts can allow the company to survive rough economic times. The downside is that the business needs to attract enough clients to keep developers and consultants busy.
Software companies can also develop a hybrid solution involving a mixture of products and services. In this case, solutions are sold to clients that require extensive customization. Approximately 20 to 50 percent of coding is required for each individual client. Customers purchasing this type of IT solution usually do not switch vendors for long periods of time.
Read more about this topic: Software Entrepreneurship
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