Firm Strategies and Business Models in the Software Industry: A Configurational Approach

Researchers have long focused on the determinants of firm success, which is of crucial interest to practitioners as well, since being successful is at the very heart of economic activity. Extant research emphasizes three levels of analysis at which determinants occur: firm, industry, and group level. Each level has been found to affect firm success. At group level, firms choose between a limited set of competitive approaches. The resulting groups are referred to as configurations. The analysis of configurations, their characteristics, and effects are the particular focus of configurational research and this thesis. Along with a multitude of other concepts, scholars have used industry-specific conceptualizations of firm strategy to derive configurations, referred to as strategic groups. Despite theoretical and methodological weaknesses in its beginnings, strategic group research has overcome initial challenges and produced a strong body of theoretical argument, methodology, and empirical evidence in the tradition of configurational research. More recently, business models have emerged as a topic of growing interest to researchers and practitioners. Though some methods from configurational research have been applied to business models, previous studies do not nearly grasp the full potential of configurational analysis. In addition to methodological shortcomings, business model research is still under criticism for theoretical and conceptual weaknesses. This thesis uses the theoretical and methodological body of knowledge from strategic group research and applies it to strategies and business models of software firms. The particular case of the software industry is chosen because of its dynamics, size, growth, and importance to other industries. In order to improve our understanding of strategies and business models in the software industry, a software-specific value chain is derived and used as the main theoretical foundation to both concepts. Building upon detailed conceptualizations, three empirical studies are presented, each using a unique dataset to analyze the concepts at hand. The empirical studies demonstrate the applicability of configurational analysis to software firms and provide insights into their characteristics and success factors. The results indicate that the most distinctive delineators of strategies and business models determine a firm’s product and market scope, such as firm size, share of international revenues, and the number of targeted industries. Strong empirical evidence suggests that broader scope is associated with higher success in terms of higher performance, higher risk-adjusted performance, and in some cases lower risk. Being consistent with the economic properties of software products and markets, such as network effects, the findings bear rich implications for researchers and practitioners, including decision makers, investors, analysts, and policy makers.