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Basics of Software Business

Basics of Software Business. ITK260 Fall 2003, Rauli Käppi In cooperation with Oulu and Helsinki SB-programs Special thanks to Oulu SB-line, who has been the major contributor for this material. Additional credits for the course. Total of 7 more lectures (including guest lectures)

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Basics of Software Business

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  1. Basics of Software Business ITK260 Fall 2003, Rauli Käppi In cooperation with Oulu and Helsinki SB-programs Special thanks to Oulu SB-line, who has been the major contributor for this material

  2. Additional credits for the course • Total of 7 more lectures (including guest lectures) • Attending 6 lectures gives you +0,5 to your final grade • Attending 4 gives you +0,25 to your final grade • Passing the exam is mandatory to earn Any extra credit – failed exams will not be added with any credits

  3. Schedule for the rest of the course Time Place

  4. Focus for the rest of the course • European, Nordic and Finnish perspective • Emphasis on Tailoring (projektiliiketoiminta) and product businesses • Interest in smaller companies and their challenges • Comparison to the lectured issues in U.S. perspective • Some consideration to legislative issues • Guest speakers

  5. Motivation…

  6. Analysis of the situation • Software industry is already the most significant industry segment in U.S. • The SW industry is forecasted to rise to be the fourth main industry segment in Finland in 10 years time • The SW business area has been growing in Finland even during the past few years (of slow growth) • Even stronger growth is expected as the overall economic situation improves

  7. What is the aim of software business education in JYU / Finland? • Still a relatively new and a growing field • The education of software engineering / programming does not alone provide sufficient skills and knowledge for this area • The education in economics does not offer enough substance in the area of IT • The aim is to offer education to be used in marketing and product development of SW companies

  8. JYU SB-focus Hi-Tech mgmt SE • Merging with EC? • Vision update in progress ISD EC SB • SW-product bus. • in start-ups • In established • components/families • SW-tailoring bus. • project bus. • turnkey solutions • contracting • SW-related services • augmented product • edu, maint. support • service contracting

  9. Multiple skills are required in a SW product company • Product development and technology transfer • Technical productisation • Business models and revenue logic • Planning and monitoring of finances • Legislative issues (of IT) • Marketing • Sales and distribution • Exporting • Management

  10. Then to business…

  11. Lecture focus • It is assumed that you are already familiar with different classifications of software business (Secrets of Software Success, etc.) • The lecture focus moves from the world market to European market and finally to the Finnish market • You should be able to form a picture of key market areas for each of the previous • Software product business has been given some emphasis

  12. Total ICT spending 2001 by country 2001(WITSA and IDC 2002)

  13. European IT vertical market, 2001(EITO 2002)

  14. A short look on selected countries • Sweden • like Finland, strong electronics industry • Denmark • like Finland without Nokia, small and developed software industry • Germany • applications for industry are central, interest in developing business processes, a few internationally known software applications • Austria • a passage of software products and hardware to east-European countries • Ireland • specialised in localisation, the European base for large U.S. software companies, has a growing own SW industry • Israel • spin-offs from the military industry, security- and encryption software, good connections to U.S. financers and markets

  15. Software company survey in Finland 2003Helsinki University of Technology, Software Business and Engineering institute, Institute of Strategy and International Business • Finnish software product industry 2001 = 900 mill. € 2002 = 1+ billion € • Growth 14% from previous year mostly achieved from domestic markets (domestic market growth 20%) • Export is some 40% of the total revenue and remained on the same level as earlier • Currently tight economical situation • There are expectations of faster future growth

  16. Personnel of software product business • Employs some 10 000 professionals • Companies estimate only modest increase in personnel • By average 34% of the personnel works in Product Development (PD) • Sales and marketing is the second biggest personnel group • 80% of the companies stated that the personnel know-how is aligned with the needs of the company

  17. Company age and development focus • The situation has normalised during past years – the relative amount of start-ups has gone down • Starting completely new products has become less common • Improving existing products’ level of productisation is seen important

  18. International software business • 46 % carried out international SW business (37% 2001) • A large portion of the companies were in the early phase of their internationalisation • Export activity to 8,1 countries by average • Export revenue 6,5M€ by average (median 0,8M€) • Total value of export 400 million € • The expectation for annual growth for export 42% and domestic expected market growth 24%

  19. The process for internationalisation • 31% of the companies started their export at the age of 0-2 years • First export sale - median at 6 years • Most common markets in order: Sweden, USA and Germany • Average time to reach the market was 10 months • Most common approaches were direct sales and using a foreign reseller / agent • A small amount went international very late

  20. Summary • The majority of Finnish (and other European) SW companies are small in the international business context • The internationalisation process as a whole is still in an early stage • The growth of the business came from domestic market year 2002, export business had almost no growth • The centers of IT-business are Helsinki (some 50%), Tampere, Turku, Jyväskylä and Oulu • The level of productisation is still relatively low

  21. Summary cont. • Product business is still a relatively small part of the whole IT business • Tailoring and hardware market are both bigger than software product business in terms of revenue • Product business has interesting qualities from the viewpoint of academic research (markets, processes, alliances, strategies, etc.) and is (often) a strong interest and focus area

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