Part 4: Cometh the hour, cometh the enterprise, Software is the new revenue stream
Digital Products and Platforms Primer
The notion that "every company is a software company" has profound implications for the realm of Independent Software Vendors (ISVs) and Digital Native companies, fundamentally reshaping their role and relevance in the digital economy. This concept, popularized by industry leaders like Satya Nadella and Marc Andreessen who said Software is eating the world, highlights the increasing importance of software in driving innovation, competitiveness, and customer value across all industries, regardless of their primary focus.
Why can we not build software products and platforms?
Enterprises are continually seeking innovative ways to diversify their revenue streams and stay ahead of the competition.
One of the most transformative trends is the shift towards software-driven revenue models. This paradigm shift is not just a strategic move but a necessity in the digital age.
By developing proprietary software solutions, companies can create new products and services that cater to evolving customer needs. These software-driven offerings can be monetized through various models, including subscription-based services, pay-per-use, and licensing agreements.
Software enables enterprises to deliver personalized and seamless experiences to their customers. By leveraging data analytics and AI, companies can gain insights into customer behavior and preferences, allowing them to tailor their offerings and improve customer satisfaction. This, in turn, drives customer loyalty and opens up new revenue opportunities through cross-selling and upselling.
Example: GE and Predix platform
GE recognized the need to innovate and stay competitive in the face of Industry 4.0. The company understood that digitalization and automation were key to maintaining its leadership in the industrial sector. As a result, GE invested heavily in developing Predix, a cloud-based platform designed for the industrial Internet of Things (IIoT).
The shift towards software has significantly contributed to GE's overall revenue. Predix has enabled GE to offer new value-added services to its customers, transforming traditional product offerings into comprehensive solutions that drive digital transformation.
This has not only generated new revenue streams but also positioned GE as a leader in the IIoT space.
The advent of Predix platform actually created a sort of customer supplier asymmetry where GE from a software consumer, manifests into a software producer and partners with other software producers on a level playing field.
GE recognized that its Predix platform had capabilities that could enhance the offerings of PTC, a leading software company specializing in computer-aided design (CAD), product lifecycle management (PLM), and IoT solutions. In 2015, GE and PTC formed a strategic partnership.
Under the agreement, PTC integrated Predix into its ThingWorx IoT platform. This integration enabled PTC to offer enhanced industrial IoT capabilities to its customers, leveraging GE's deep industry knowledge and advanced analytics.
Shift towards Services and Platforms
The rise of the "every company is a software company" mindset also underscores the need for extensible and interoperable software solutions. Businesses seek software that can adapt to their specific requirements and seamlessly integrated with existing systems and workflows.
Example: John Deere
John Deere, a well-known manufacturer of agricultural machinery and equipment, is not traditionally seen as an IT company. However, recognizing the potential of digital transformation, John Deere has ventured into the software space to enhance its product offerings and provide added value to its customers. One of its notable initiatives involves building software solutions on top of ERP platforms.
John Deere focused on developing software solutions that could be integrated with popular ERP platforms, such as SAP and Oracle. These solutions include:
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John Deere’s venture into building ISV solutions on top of ERP platforms demonstrates how non-IT companies can leverage their domain expertise to create valuable software products.
By integrating these solutions with established ERP systems, John Deere has enhanced its product offerings, created new revenue streams, and provided significant value to its customers. This example illustrates the potential for non-IT companies to innovate and thrive in the digital age through strategic software development and integration.
Integration and Eco system play
In light of the increasing commoditization of software and the growing emphasis on subscription-based models, ISVs are shifting their focus from standalone products to comprehensive service offerings and platform-based solutions.
Enterprises can latch on to the platform strategy by becoming an eco-system partner and start to operate in the market place of the platform.
While the enterprise can harvest its own experience and expertise in their specific domain, it can leverage the platform expertise of the software vendor, co-existing to create specific and ongoing value to the market.
Example: Sandvik Building Software Verticals on Microsoft Dynamics 365
Sandvik, a global engineering group specializing in mining and rock excavation, metal-cutting, and materials technology, has leveraged its deep industry expertise to develop specialized software solutions. Recognizing the need for integrated digital tools to enhance operational efficiency and productivity, Sandvik built software verticals on the Microsoft Dynamics 365 platform.
Sandvik identified several key areas within its operations and customer base where digital solutions could provide significant value.
By integrating these solutions with Microsoft Dynamics 365, Sandvik aimed to offer comprehensive, industry-specific software that addresses the unique challenges faced by its customers in the mining and manufacturing sectors.
By building these software verticals on Microsoft Dynamics 365, Sandvik ensured seamless integration with a powerful ERP and CRM platform. The integration provided foundation, integrations and infrastructure elements via:
Collaboration and Co-Creation
Finally, the drive to make software a revenue stream, fosters a culture of collaboration and co-creation among ISVs, their customers, and other ecosystem stakeholders in this case the enterprise. By engaging closely with customers to understand their pain points and requirements, enterprises can co-create solutions that address real-world challenges and deliver tangible business outcomes.
Likewise, partnerships with complementary ISVs, technology providers, and industry experts enable enterprises to leverage collective expertise and resources to accelerate innovation and drive mutual success.
Siemens Healthineers, a leading medical technology company, has embraced software innovation to enhance healthcare delivery and patient outcomes. Through its digital health platform, teamplay, Siemens Healthineers provides healthcare providers with tools for data aggregation, analytics, and collaboration, enabling them to optimize clinical workflows, improve diagnostic accuracy, and drive operational efficiencies. By leveraging software solutions and AI-powered diagnostics, Siemens Healthineers empowers healthcare organizations to deliver personalized, value-based care and navigate the complexities of modern healthcare delivery.
Through case studies of companies like General Electric, John Deere, Siemens Healthineers, and Sandvik Group, we see how organizations across diverse industries are leveraging software and digital technologies to drive business transformation, enhance customer experiences, and create new opportunities for growth.
Conclusion
As the digital economy continues to evolve, enterprises will continue to innovate, collaborate, and reinvent themselves to stay relevant in an increasingly software-centric world and nurture software as a new revenue stream.
All the while enterprises have resorted to be the receiving end of the software innovation, over time they progressed to transforming with software and now enterprises are ready to disrupt with software. We are at such a beautiful cusp of time to witness widespread innovation across the software supply chain, and I always think the best is yet to come.
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7moWell organized and insightful article. Thanks for sharing Kiran Madhunapantula
Assistant Vice President | Product Engineering | Portfolio Management | Continuous Improvement | Agile Methodologies | Delivered 60% increase in the profitability and 100% repeated client business.
11moThe article is well-organized and highlights the importance of innovation for finding new revenue streams and staying competitive. It is great to see real-world examples of companies using innovation to stay ahead. Thanks for including a variety of organizations and their unique approaches - it demonstrates different thought processes. Thank you Kiran for sharing a very insightful and engaging read!