Special Characteristics of Software and Software Markets - Implications for Managing Software Business

This paper examines software markets, and especially how market effects affect how value is created and captured. We propose an initial model that incorporates both the special effects related to software markets, how these effects affect value of software and what factors should be considered to leverage the effects. The model is based on a literature review that resulted in identifying four specific market effects: network externalities, returns to complements, lock-in, and positive feedback. Furthermore, we identified four issues the firms should consider when pursuing the desired market effects: market definition, value configuration, contracts and legal actions, and customers. The literature-based model was evaluated and complemented by two case studies with Finnish software firms incorporating altogether 17 interviews. The model gained initial support on the basis of the interviews. This paper proposes that the identified market effects should be considered when the value of software engineering decisions is evaluated