Software Business Models

The business model disruption framework as it applies to software has multiple layers: Platforms have changed and are changing; enterprise and personal computing markets differ significantly; and the division of labor among operating systems, network services, and application software is also in flux. For our purposes, let's look at the case of Microsoft, insofar as it was a dominant player in software markets through most of the 1990s. How did Internet-related events and trends disrupt its business model?

Incumbent Model Pre-2000

Back when investors were looking for “the next Microsoft,” they held certain assumptions about what a highly successful software company looked like.

Customer Value Proposition

The value proposition for Windows in the 1990s was compelling: If you want to do any of the many wonderful things computers can allow you to do, we are the only game in town. Apple was a niche provider with tiny market share and high prices because of the proprietary hardware-software relationship. For a time, IBM's OS/2 operating system had some technical advantages over Windows, but IBM never established the application ecosystem that would make its OS competitive. No other platforms were credible after the semihobbyist and cult brands of the 1980s, such as Amiga, were sufficiently marginalized.

Once you bought a computer with the Windows OS, by 1995 there were no real alternatives for office productivity applications. In this complementary ...

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