Some Perspectives on Software Products versus Software Services
The Difference between Services and Products
The difference between services and products in software is that whereas the former involve work done for clients that are not the intellectual property of the vendor, the latter are patented by the vendor and sold in terms of licenses to the users. Further, the difference between products and services in software is that whereas products usually represent high end work done by the vendors, services are usually middle to low end work that is done by the vendor. Apart from this, products entail higher value adding activities whereas services are lower value adding activities. Moreover, products need time and money to be invested to take them to fruition whereas services are usually measured in terms of the projects delivered within months or a year at the maximum. The key aspect about products and services in software is that products represent the culmination of several years of effort by the vendor who focuses on a specific niche to develop the products. On the other hand, services are usually projects that are done at the behest of the client and are billed according to time and material accounting or fixed cost accounting.
The Reason why the US is ahead and Asia lagging behind in Innovation
When we talk about software products and services, it needs to be mentioned that countries like the United States are ahead of the others in terms of innovation as the software and technology companies in the US make products instead of services. Think Microsoft or Apple and their game changing products. On the other hand, though countries like India are behemoths in the software industry, it is hard to find many companies that have developed products. Indeed, one of the reasons for outsourcing of services work from the West to the East is that the west can concentrate on higher value adding work like making products and by outsourcing the lower value adding work, they derive cost benefits as well as freeing up of resources that can be deployed for focusing on products. Further, the reason why the US is way ahead of the rest of the world in terms of innovation is that right from its inception, entrepreneurs were always on the lookout for game changing innovations and thus, when the software and technology industries and companies were being incubated, naturally the entrepreneurs in these sectors started to focus on products as a source of innovation.
Changing Trends in Products in Asia
However, some recent trends seem to suggest that Asian companies have realized the importance of software products as their software industries mature and hence, services become too low end to sustain them. Further, now that they have significant capital reserves, they can deploy these resources in investing on product development. Remember that software products take a lot of investment of time and effort and hence, the Asian software industry is now finally realizing that as they have the needed capital as well as funding from venture capitalists from the west that sense an opportunity here, they can focus on building software products. Indeed, one of the best-known Asian companies that have a solid banking software product is Oracle Financial Services or the company that was previously known as i-Flex. This Indian company is a trailblazer as far as software products are concerned and because it invested a lot of time and money apart from effort in building the banking software product, it is now reaping the rewards of all that investment in terms of sales and reputation of its flagship product, Flexcube that is the largest selling banking software product in the world.
Now that we have discussed how products and services square up against each other, it would be worthwhile to note that not all companies can afford to build software products because of the reasons mentioned in the previous sections. Therefore, the role of venture capitalists and angel investors is especially crucial in this respect.
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