APPENDIX

Software Business Model Framework and its Key Concepts

This conceptual business model framework summarizes the value creation and value appropriation processes of software businesses. Within the business model, the focus is on four basic elements distinguishing different business models from each other. These elements are product development approach, revenue logic, distribution model, and servicing and implementation model (for more details, see Rajala et al., 2001).

Product Development Approach

The product development model describes the core product offering of a software venture and the way its product development work is organized. Inside the product development model, there are several alternative approaches in developing the product offering. These options include pure project-oriented model where customers' needs are responded to with customer-specific system projects. At the other end, there are pure product-oriented models including options for creating universal software products, parametrized system products, or a product family of universal software components, and so on.

Revenue Logic

The revenue logic describes the way the software venture generates its revenue and profit. The alternatives inside this business model element include effort-driven pricing of software projects, sales and leasing of software licenses, profit sharing agreements between software vendor and its customers and/or sales channel partners, different loss-leader and media models and hybrids based on them.

Distribution Model

The marketing model describes the way marketing of the software venture's product and service offering has been organized and who are its sellers and marketers. The sales model also characterizes the outcome of the sales process, or the agreement reached between the vendor and a customer about the characteristics of the solution provided: Will it be based on uniform products sold for other customers as well, or is it a tailored solution to one customer only, or something between these alternatives?

Servicing and Implementation Model

The servicing model describes how the product offering will be dispatched or delivered to the customers as working solutions. The possibilities range from consulting by the vendor to self-service by the customer. This is an important part of the equation for the software producer, because more tailored and specialized its offering is, the less there are possibilities for exponential growth.