Two Categories of Software-Enabled Tech Firms for Strategy Formulation

Two Categories of Software-Enabled Tech Firms for Strategy Formulation

The following are some features which distinguish digital (software-enabled) companies, knowing that most companies are now quasi-conglomerates. That means they exhibit both features. The structural business model of your business will likely bound the monetization strategy from day 1. In other words, you cannot expect to make money like Facebook (or Nairaland) when your business model is structured like Apple’s (or Interswitch). The implication is huge as how you make money drives most decisions you make on products.

Apple can build a top-grade privacy product in U.S. because its business model does not require “selling’ user data. Facebook can do that technically but it would be stupidity to execute that since its main raw material is the customer data. Unless Facebook changes its business model, its privacy will never match Apple’s [that does not mean Facebook cannot create a balance].

That is why when people compare what Apple offers on privacy to what Facebook has, they miss the point. Facebook engineers can deliver top-grade user privacy. But if they succeed, they would all go home, out of jobs. Yet, to show you that it is about business model [by that I mean, growing margins], Apple handed its encryption keys to the Chinese government on its Chinese customers, making it clear that if the pursuit of margin requires playing with privacy, Apple will fall in line.

So, as you begin the monetization strategy on your startup, look at how some ecosystem elements could shape what you can do. Most times, the business category defines the value-trajectory more than anything any accountant/strategist can envision.

Category A Category B
Software The product is Free Users pay (licensed software, Microsoft; software differentiated by hardware, Apple)
Monetization Third party (via adverts) Direct payment for products
Scale Drivers Absolutely  network effect Mildly network effect (growth costs money)
Internet Absolute internet dependent Necessary, but not absolute
Marginal Cost Near-zero Non-zero cost
Growth Strategy Very fast (free wins) Not as fast (marginal cost imposes limits)
Nature Aggregators (natively internet) Platforms (builds moats but cannot control suppliers/3rd parties as Aggregators)
Local example Nairaland SystemSpecs
International example Facebook Apple

Most companies have hybrid of these features.


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