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Value Creation in Software Service Platforms

Author

Listed:
  • Netsanet Haile

    (Technology Management, Economics, and Policy Program, College of Engineering, Seoul National University)

  • Jorn Altmann

    (Technology Management, Economics, and Policy Program, College of Engineering, Seoul National University)

Abstract

In order to benefit from operating an IT service platform (e.g., SaaS platform), platform providers need to find a way to keep their existing users and application services active sources of value. However, the understanding of how to achieve that is limited due to the newness of this kind of business. This paper investigates whether all stakeholders of the platform ecosystem can generate sufficient value when participating in the platform. As stakeholders, we consider application service users, service developers, and service platform providers. We also analyze the interrelationship between these stakeholders. The analysis outcome is a value creation model that allows the calculation of the stakeholders’ values. The model also helps inferring the relative impact of different factors on the evolution of values of the software service platform stakeholders. Our simulation results confirm that all stakeholders of a service platform mainly benefit from a growing installed base of application users. However, in a mature market, a large service variety mainly benefits the service platform provider, while the other stakeholders obtain a reduced increase in their benefits. In particular, the utility growth of application users becomes constrained as the benefit from new connections with other users decreases and the number of new services used decreases. Similarly, the revenue of service developer decreases, making service development less profitable. Therefore, we can state that not only a large fraction of the value creation goes to the platform provider but also that the software service ecosystem can collapse, if no mutually beneficial pricing of services is implemented.

Suggested Citation

  • Netsanet Haile & Jorn Altmann, 2015. "Value Creation in Software Service Platforms," TEMEP Discussion Papers 2015123, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Sep 2015.
    • Handle: RePEc:snv:dp2009:2015123
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    File URL: http://temep-repec.my-groups.de/DP-123.pdf
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    References listed on IDEAS

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    Cited by:

    1. Netsanet Haile & Jörn Altmann, 2016. "Structural analysis of value creation in software service platforms," Electronic Markets, Springer;IIM University of St. Gallen, vol. 26(2), pages 129-142, May.
    2. Cinzia Battistella & Gianluca Murgia & Fabio Nonino, 2021. "Free-driven web-based business models," Electronic Commerce Research, Springer, vol. 21(2), pages 445-486, June.
    3. Netsanet Haile & Jörn Altmann, 2017. "Evaluating Investments in Portability and Interoperability between Software Service Platforms," TEMEP Discussion Papers 2017136, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised May 2017.
    4. Payam Hanafizadeh & Parastou Hatami & Erik Bohlin, 2019. "Business models of Internet service providers," Netnomics, Springer, vol. 20(1), pages 55-99, April.
    5. Baseem Al-athwari & Jorn Altmann, 2015. "Utility-Based Smartphone Energy Consumption Optimization for Cloud-Based and On-Device Application Uses," TEMEP Discussion Papers 2015125, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2015.
    6. Dongnyok Shim & Jin Gyo Kim & Jorn Altmann, 2016. "Identifying Key Drivers and Bottlenecks in the Adoption of E-Book Readers in Korea," TEMEP Discussion Papers 2016129, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Jan 2016.

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    More about this item

    Keywords

    SaaS and PaaS Platform; Value Creation; Value Distribution Model; Two-Sided Network Effect; Business Modeling; Software Business; Cloud Computing; Software Ecosystem; Software Services.;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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