Software Services Vs. Software Product

A few days ago, in a tech community, I participated in an interesting discussion about making India a software product nation.

India as a Software Product Nation

One of the main discussion points was if it is possible to change the Indian Software Services industry to the Software Product Industry!

Having worked in both Industries, I have a specific observation about how things work. Below is a glimpse of what I shared:

Many founders/owners of Software Services companies, especially the smaller ones, think they must change the business model to a Product software company from their services company.

Not necessary. In many cases, it is counter-effective because the Software Service biz mindset is different (finishing things fast) from what usually gives success in the Software Product biz (making things relevant to the market demands).

Services and Product biz – both are different ballgames, and both business activities solve different problems.

Typically, software service companies offer expertise to conduct activities such as programming, designing, analysis, testing, etc.

If the activities are performed as per the client’s expectations (scope, met, or exceeded), they have done a successful job, and they will get their profits.

A product software company works to solve a typical business problem (or entertainment problem if the niche is gaming/lifestyle) with whatever they have pre-produced and works to find a profitable niche to supply its product.

Tailor Vs. Suit maker

If you run a software service company, you are like a Tailor who stitches outfits to suit the client’s needs. Still, if you are running a software product company, then you are a Suit maker company that sells costumes to customers who need them!

The Tailor company needs tailors, and the Suit maker company also needs tailors (tailor = tech professional) – but they work to achieve a different goal.

The Tailor wants to finish the work as soon as possible because they can take the next order. So a tailor focuses on finishing the job fast with accurate measurements!

The Suit maker wants to make the suit better/relevant, so it can attract a wider audience with minimal alteration. They work to cater to major generic measurements because they don’t have any specific measure to chase!

Similarly, a Service biz owner wants to sell the man-hours and focuses on finishing the work fast as per the scope.

It is a success for him when a Product biz owner wants to improve the product (read: relevant to the market demands). Profitably achieving product-market fit is a success for him.

While the Service biz owner has his skin in the game. because he won’t get paid if he does not provide the expected Service, the Product biz owner has not only his skin but his blood beneath his skin in the game!

If he cannot achieve the product-market fit by the time his funds last, he is out of business!

There is no “need” to move from services to products, although it is a personal choice, and if one understands the distinction between the two and wants to shift from a Tailor mindset to a Suitmaker mindset, they can!

The Ecosystem Question

Now the ecosystem question and if an ecosystem can help software product companies or not – typically, an ecosystem can help service companies more because they can exchange tailors, offer discounted rates, etc.

Now, an ecosystem is less likely to help the product companies because each product company can be unique with its unique set of challenges (product-market fit), although there might be specific exceptions!

PS: these are simple thoughts, but businesses are not so simple…so take my thoughts with a pinch of salt. Your unique context may be different! I have done both – products and services and a blend of them, including investment from service biz to some products, and I was fortunate enough to make them profitable! But yes, the product biz returned better profits after a significant wait period.