Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry
Some product firms increasingly rely on service revenues as part of their business models. One possible explanation is that they turn to services to generate additional profits when their product industries mature and product revenues and profits decline. We explore this assumption by examining the...
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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Institute for Operations Research and the Management Sciences (INFORMS)
2014
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| Online Access: | http://hdl.handle.net/1721.1/87623 https://orcid.org/0000-0003-4656-6803 |
| _version_ | 1826188343566663680 |
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| author | Suarez, Fernando F. Cusumano, Michael A. Kahl, Steven J. |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Suarez, Fernando F. Cusumano, Michael A. Kahl, Steven J. |
| author_sort | Suarez, Fernando F. |
| collection | MIT |
| description | Some product firms increasingly rely on service revenues as part of their business models. One possible explanation is that they turn to services to generate additional profits when their product industries mature and product revenues and profits decline. We explore this assumption by examining the role of services in the financial performance of firms in the prepackaged software products industry (Standard Industrial Classification code 7372) from 1990 to 2006. We find a convex, nonlinear relationship between a product firm's fraction of total sales coming from services and its overall operating margins. As expected, firms with a very high level of product sales are most profitable, and rising services are associated with declining profitability. We find, however, that additional services start to have a positive marginal effect on the firm's overall profits when services reach a majority of a product firm's sales. We show that traditional industry maturity arguments cannot fully explain our data. It is likely that changes in both strategy and the business environment lead product firms to place more emphasis on services. |
| first_indexed | 2024-09-23T07:58:13Z |
| format | Article |
| id | mit-1721.1/87623 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T07:58:13Z |
| publishDate | 2014 |
| publisher | Institute for Operations Research and the Management Sciences (INFORMS) |
| record_format | dspace |
| spelling | mit-1721.1/876232022-09-23T09:58:21Z Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry Suarez, Fernando F. Cusumano, Michael A. Kahl, Steven J. Sloan School of Management Cusumano, Michael A. Some product firms increasingly rely on service revenues as part of their business models. One possible explanation is that they turn to services to generate additional profits when their product industries mature and product revenues and profits decline. We explore this assumption by examining the role of services in the financial performance of firms in the prepackaged software products industry (Standard Industrial Classification code 7372) from 1990 to 2006. We find a convex, nonlinear relationship between a product firm's fraction of total sales coming from services and its overall operating margins. As expected, firms with a very high level of product sales are most profitable, and rising services are associated with declining profitability. We find, however, that additional services start to have a positive marginal effect on the firm's overall profits when services reach a majority of a product firm's sales. We show that traditional industry maturity arguments cannot fully explain our data. It is likely that changes in both strategy and the business environment lead product firms to place more emphasis on services. 2014-06-04T15:31:55Z 2014-06-04T15:31:55Z 2013-02 2011-11 Article http://purl.org/eprint/type/JournalArticle 0025-1909 1526-5501 http://hdl.handle.net/1721.1/87623 Suarez, Fernando F., Michael A. Cusumano, and Steven J. Kahl. “Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry.” Management Science 59, no. 2 (February 2013): 420–435. https://orcid.org/0000-0003-4656-6803 en_US http://dx.doi.org/10.1287/mnsc.1120.1634 Management Science Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf Institute for Operations Research and the Management Sciences (INFORMS) Other univ. web domain |
| spellingShingle | Suarez, Fernando F. Cusumano, Michael A. Kahl, Steven J. Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry |
| title | Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry |
| title_full | Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry |
| title_fullStr | Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry |
| title_full_unstemmed | Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry |
| title_short | Services and the Business Models of Product Firms: An Empirical Analysis of the Software Industry |
| title_sort | services and the business models of product firms an empirical analysis of the software industry |
| url | http://hdl.handle.net/1721.1/87623 https://orcid.org/0000-0003-4656-6803 |
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