Software vs. Services – Which has more demand in 2020?

Software vs. Services – Software is eating the world

There is a lot of debate going on Software vs Services. The cofounder and head of the famous Venture capital firm Andressen Horowitz had famously quoted way back in 2010 that “Software is eating the world”.
Since 2010, the world has changed a lot with digital revolution forcing companies to relook at their business models. So in 2019, is the quote – Software eating the market relevant?
I personally don’t think that this is relevant in 2020.This is because more and more companies are consuming Software as a Service. Hence it is the services that is eating the software.

Shift towards using Software as a Service

• As companies increasingly look to consume Software as a service, there are challenges firms are facing today in shifting to this model.Services need new operating models which will help companies to get clarity on what they are doing with services which inturn will help them to stay in control.
• Services offerings are intangible which produces tangible results. In this digital revolution, Software services are at the heart of Digital Transformation which is transforming every industry with its innovative operating models and service offerings. Software services allows companies to substitute capital investments in software over labor.
• This is evident now as all legacy software products are moving to SaaS. This leads us to conclude that companies are no longer buying software; they buy the service that Software delivers. The traditional model of purchasing software and then implementing it is giving way to the Software as a Service model.
• The disruption of Cloud has further increased the adoption of SaaS models as the software is hosted in cloud and can be consumed as a service.Virtualization which disrupted the IT infrastructure by automating the infrastructure are now available to the business as a service. Hyperscale cloud offerings from Google, Microsoft and Amazon are just doing that.

Software vs. Services – Services are eating traditional business assets

• Services have created innovative business models which has disrupted the traditional business offerings.Take the case of ridesharing business where companies like Uber and Lyft have literally shut down traditional car rental companies that own tangible assets like cars.The ride sharing business connects the driver and a person who needs a car to reach his destination.This is in stark contrast to the traditional businesses model where the rental companies own fleet of cars.
• All round the world, people are not interested to own tangible assets or software products and inturn want to consume them as a service. We are indeed moving towards an experience led service economy.
• In a SaaS model, companies don’t own the software, they are just buying the services of software. The buyer gains the benefits of using software but does not shoulder the liability of owning datacenters and software. The biggest benefits that enterprises get from this model is that they can reap economies of scale from an asset perspective as well as from a software perspective.
• The software as a services model complements with what Digital transformation really stands for.The companies are focused on delivering the results without worrying about getting the components.

Software vs. Services – Challenges in Services Models

• Services are intangible offerings that creates tangible results.The biggest challenge is that services are changing across different vectors such as how the end user consumes them, what is the tech stack used, is the operating model right and how good is the talent model?
• These changes creates ripples through the services ecosystem.This change is driven by several factors like:

1. End users constantly evolve
2. Technology stack used to deliver services constantly evolve and gets upgraded to new versions
3. The operating model also evolves due to change in Technology stack, changes in customer needs and changing vendor environments
4. The talent models and requirements also constantly evolve

Inspite of these challenges, the biggest benefits the companies derive from a service model is that they don’t need to spend time, efforts and money in owning and integrating assets. The firms can focus on things that create value for their customers rather than focusing on the components.

Changes in Management models to adapt to services

• The constant changes in services across multiple vectors creates a special set of challenges for companies to deal with.Most companies struggle to adapt to “Software as a service” world.As company buy the benefits and not the assets, the services ecosystems that supports it is evolving at an unusually high rate of change.
• Change is difficult and often painful.The traditional management is still trying to figure out how to adjust to these changes and need to have defined actions to manage/operate in these environments.
• The service providers need to be accountable for their services but at the same time innovate to provide greater value.The service providers need to structure innovative consumption models and need to move away from traditional pricing models.They need to be agile in their approach and should move towards agile operating model.

Software vs. Services – Conclusion

• In this debate of software vs services in the era of Digital Transformation, companies are moving from Software model towards Software as a service model as this helps companies to focus on creating value for their customers rather than focusing on owning the software components.
• At the same time, the service providers need to evolve their service offering, be innovative and move towards agile operating model in order to provide the value that companies need.