Market Maturity Influences on the Business Model

The maturity of your target market is one of the strongest influences on the selection and management of a given business model. In the early phases of a given market, business models should be chosen so that they can be quickly and easily understood , primarily because you may not be certain of the best way to structure them. You may find that your customers prefer an annual license to a subscription, or that they expect discounts if they purchase in bulk. Moreover, despite the best intentions of the business plan, innovators and early adopters may expect and/or demand special terms.

As the market matures, chances are good that your business model will become increasingly complex in order to serve the idiosyncratic needs of different market segments. I helped one client whose growth had stalled attack a new market segment with the same underlying system simply by defining a new business model. The original one consisted of an annual license. The new one was pay per use. The easy part was modifying the underlying architecture so that both models could be supported. The hard part was creating the appropriate price points so that a given customer could choose the best model without harming the relationships with current customers.

The enforcement of business models also matches the maturity of the target market. In early market stages, enforcement tends to be lax. As the market matures, or in cases where you suspect piracy, the enforcement tightens up. My experience is that marketects and tarchitects take enforcement far too lightly. You've worked hard to create your system, and software piracy is a serious problem. Create a business model that identifies the real value provided to your customers, price it competitively, and enforce it accordingly . Just remember that onerous enforcement will lead to dissatisfaction among honest customers, so be careful.

Choosing a Business Model

Choosing a business model is one of the most challenging tasks faced by the marketect, as it incorporates everything that has been discussed in this chapter and several factors that are beyond the chapter scope, such as the business and licensing models offered by competitors (which may constrain you to existing market expectations) and corporate and/or environmental factors beyond your control (such as when another division does poorly and you need to find a way to increase short- term revenue). To help you through the potential morass of choosing a business model, consider these questions.

  • What is the target market? What does it value? A crisp description of the target market and what it values is the first step in creating an appropriate business licensing model. If you're not certain of what it values, consider how it wants to use what you're offering. Once you've determined what your market values, show how your solution provides it.

  • What are your objectives relative to this target market? In an emerging market you may wish to capture market share, so create simpler models. In a mature market you may wish to protect market share, so create more complex models to provide flexibility.

  • What is your business model? Pick one of the business models defined above and customize it to meet your needs.

  • What rights do you wish to convey ? Begin by asking your legal department for a "standard" contract, as it will contain a variety of nonnegotiable rights and restrictions. See what you can do about everything that is left.

  • What is the affect of this business model on your software architecture? Work with the tarchitect to make certain that any business model you propose is appropriately supported.

  • What is the pricing model? The business model provides the framework for defining how you're going to make money. The pricing model sets the amount the customer will pay. You'll need to consider such things as volume discounts, sales and/or channel incentives, and so forth. Pricing choices may also affect your software architecture, so make them carefully .

As you develop the answers to these questions, you're likely to find that the best way to reach a given target market will require a variety of changes to your current business model, licensing model, and software architecture. You'll have to rank-order the changes in all areas of your product so that you can reach the largest target market. The benefits will be worth it, as creating the right business and licensing model forms the foundation of a winning solution for both you and your customers.

Beyond Software Architecture[c] Creating and Sustaining Winning Solutions
Beyond Software Architecture[c] Creating and Sustaining Winning Solutions
ISBN: 201775948
Year: 2005
Pages: 202 © 2008-2017.
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