Charging Customers or Making Profit? Business Model Change in the Software Industry

Abstract

Purpose: Advancements in technology, changing customer demands or new market entrants are often seen as a necessary condition to trigger the creation of new Business Models, or disruptive change in existing ones. Yet, the sufficient condition is often determined by pricing and how customers are willing to pay for the technology (Chesbrough and Rosenbloom, 2002). As a consequence, much research on Business Models has focused on innovation and technology management (Rajala et al., 2012; Zott et al., 2011), and software-specific frameworks for Business Models have emerged (Popp, 2011; Rajala et al., 2003; Rajala et al., 2004; Stahl, 2004). This paper attempts to illustrate Business Model change in the software industry. Design: Drawing on Rajala et al. (2003), this case study explores the (1) antecedents and (2) consequences of a Business Model-change in a logistics software company. The company decided to abolish their profitable fee-based licensing for an internet-based version of its core product and to offer it as freeware including unlimited service. Findings: Firstly, we illustrate how external developments in technology and customer demands (pricing), as well as the desire for a sustainable Business Model, have led to this drastic change. Secondly, we initially find that much of the company’s new Business Model is congruent with the company-focused framework of Rajala et al. (2003) [product strategy; distribution model, services and implementation; revenue logic]. Value: The existing frameworks for Business Models in the software industry cannot fully explain the disruptive change in the Business Model. Therefore, we suggest extending the framework by the element of ‘innovation’.