Knowing the business eco-system, be it hard, soft or a combination, that your company is part of is critical to understanding new patheways to grow.

‘Soft’ business models

I have a background in software marketing. Techrigy, the last company I worked for, and BlueTie, a previous employer, are both software as a service or SaaS companies. In other words they provide software that is not wedded to proprietary operating systems or hardware configurations. You simply subscribe and access via a web browser.

SaaS is a rapidly growing model for delivering software to customers because it is scalable and relatively easy to understand the cost structure involved. It generally does not require input from IT people, making the sales and purchasing process much less complicated. It is a truly ’soft’ business.

‘Hard’ business models

Hard businesses on the other hand sell things. These things often incorporate software that gives them intelligence. Your setback thermostat, your iPod, your CNC robot, your Blackberry- they’re all hard devices. Hard businesses have traditionally been more costly to start because of the need for prototyping, tooling, inventory, distribution, etc. However this is rapidly changing as designers have the ability to design and test in completely virtual environments, build instant prototypes with rapid prototyping technology and contract manufacturing and distribution out to companies designed to handle that business.

The hard/soft eco-system business model: Apple

Apple is the quintessential example of a hard business that operates more like a soft business. The vast majority of their considerable profits come from the sale of hardware, yet they own no factories. They are expert software developers, yet they give most of their software away with their devices. All of their manufacturing is outsourced. But even Apple is venturing into the grey area where hard businesses become soft businesses. The iPhone, perhaps the most phenomenally well-conceived and marketed new product ever, is neither a completely hard or soft product- it is a piece of an elaborately conceived business eco-system.

Business eco-systems are social models

This eco-system is in fact based on social network theory, something I believe Apple founder Steve Jobs is intimately aware of. iTunes introduced a custom browser-based store where you could buy content for your iPod; SaaS in other words. It put the retail music business out of business. iPhone was conceived as a platform with a complete operating system comparable to a computer- that happened to make phone calls. The App Store, via iTunes, introduced the ability to buy ridiculously cheap software that extended the usability of iPhone to the point where it becomes the most important device for daily use that we own. iPod Touch offers this usability for those who don’t need the telephony piece. Apple freely distributed a Software Developers Kit (SDK) for iPhone OS that made it possible for thousands of programmers to start soft businesses for virtually nothing. Within a year it had 20,000 applications and over 1 billion downloads.

Understanding your business eco-system is crucial to your growth strategy

This interconnected approach is where your business model needs to be pointed, regardless of where in the hard/soft continuum you fall. Look at your customers, partners, distribution paths, purchasing, design, sales and competitors as elements of an eco-system. Once you understand your place in that eco-system it becomes much easier to undestand where you can leverage your position to grow our business.

Want to get an outside perspective on the eco-system your company lives in? We should talk. Contact me via my website, martinedic.com

Update: iPhone/iPod Touch used by military without three year procurement process

The US military is finding iPhone and iPod Touchs to be field ready devices right out of the box. From an eco-system POV this is not a minor story. Apple has entered the military procurement system with an off the shelf product with a zero ramp-up time frame. Why? How? Because soldiers in the field can build their own applications for using it the way they need to. Can you imagine if a military contractor was contracted to build this? See you in 3-5 years with a product that costs $10k per unit and doesn’t work…

Eco0system business approaches are fast and adaptable.