Many people consider software product engineering and software service operations to be the same. While it is interchangeably used, there are significant differences between the two. Let’s understand what they are and the differences.
There are broadly two types of software or IT companies if you categorize them based on their core activities. Software product engineering companies and software service operations companies. There are certain similarities between the two but then there are significant differences also. So, let’s first begin with an understanding of what is software product engineering and software service operations.
Software product engineering is related to building a product. In IT parlance, a product can be an app, or a system etc. It includes both hardware and software. For example, Facebook, Instagram, Salesforce CRM, SAP ERP etc., are products. Software product engineering companies build products and then sell them in the market. Many products such as Facebook and Instagram are available for free while Salesforce CRM, and SAP ERP are available at a fee. Irrespective of their monetization models, companies that build or sell products are called software product companies.
Software service operations are related to providing services to businesses in leveraging new technologies, managing their IT environment and offering maintenance and support. This also includes both hardware and software. For example, companies like Infosys, TCS, Wipro and Cognizant offer mainly software services. Most of their revenues come from services. They build applications for the businesses, help them implement products bought from SAP, Oracle, Salesforce etc.
Companies offering software services enter contracts with businesses and depending on the engagement model and nature of the work charge fees.
These days, with digitalization becoming the norm, most companies also build enterprise-centric products, such as mobile and web apps.
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- Development Cycle: Software product engineering and service operations have different development cycles. Product engineering involves ideation, architecture, development, testing and launch etc. Moreover, to succeed, you need to identify a problem that your product will solve. Software services don’t have a development cycle. It mainly involves organizing people, understanding business requirements and then executing them within a given timeframe. The services are based on contract terms and are time-bound.
- Costs: It is highly expensive to build a software product. The cost includes the development of software tools, patent registration costs, hardware costs if any hardware is being used and salaries of software engineers involved. Service operation costs mainly include billing of the resources on an hourly basis and licensing of software.
- Monetization: Software product companies use free, paid or freemium models to earn revenue from their products. For example, Facebook is free for use but if you will be charged for running ads. Salesforce CRM or SAP ERP are paid products wherein the users must buy licenses to use them. Many companies also follow the freemium model wherein some features are free while other features are paid. Software service companies use hourly billing or annual contracts for monetization.
- Risks: Building a software product is risky but highly profitable. You can sell a software product to millions of users. All you need is the right infrastructure and the ability to identify the right market opportunity to support the usage. Facebook is used by over 1.5 billion people across the globe. It can keep adding users to the same platform. Software services are not risky and hence have lower profit potential. It depends on the number of resources you have in your company, their billable hours and your charges. In a crowded marketplace, the charges have to be competitive. Hence, profitability is limited.
- Service operations are focused on meeting the technology requirements of businesses whereas software product engineering is focused on solving the problem of people or businesses.
- Software product engineering is highly risky but highly profitable whereas software service operations are less risky and less profitable.
- Software product engineering companies use free, paid and freemium monetization models while service operations have hourly billing and annual contracts.