Maximize value: Software transformation or software end-of-life?

Enterprises want to maximize the value of their software product portfolio. However, many often struggle to deliver on this. While existing and legacy products generate significant revenue for enterprises, their maintenance consumes considerable resources, depleting R&D budgets and limiting opportunities to create new and modernized products that can lead to long-term growth.

According to the research firm Everest Group, “CTOs and CIOs of scaled enterprises often spend 60-80% of their R&D budget on just the maintenance of their existing and end-of-life products and seek to strike the right balance between the funds required for innovation versus keeping the lights on.”

The Software Product Lifecycle (SPLC)

Many enterprises experience a sub-optimal allocation of the R&D budget. The key to resolving this R&D allocation is greater visibility of the software product lifecycle (SPLC). First, let’s define what SPLC is.

The software product lifecycle is the comprehensive journey of a software product. It begins when an organization identifies a need in the market and conceives a plan (i.e. involving software) to address that need. The lifecycle ends when the product is sunset. SPLC includes ideation, design, prototype creation, solution architecture, testing, deployment, performance management, product sustenance and maintenance.

According to Everest Group, SPLC has three phases:

• Innovation: During the innovation stage, the software product has not yet entered the market. This stage requires significant capital investment and R&D, but generates no revenue.
• Development and enhancement: During this stage, a product receives version upgrades in line with market needs, and the user base of the software product gains momentum and reaches its peak.
• End-of-life: Eventually, a software product enters its end-of-life phase, when it is no longer scalable and the underlying technology used to build the software cannot be leveraged further to enhance the product.

The Billion Dollar Question

When allocating an R&D budget against an enterprise’s software product portfolio, leaders must decide whether to create new and disruptive software products, develop and maintain legacy products, or modernize legacy software to shift economies of scale.

In a white paper titled “Unlocking The Growth Frontier Through Software Product Innovation”, Everest Group calls this ‘the billion dollar question’: should enterprises innovate, maintain or modernize?

According to Everest Group, enterprises often make the wrong decision:

“Enterprises often end up focusing on the short-term business impact of software products, rather than their long-term value, leading to the misallocation of R&D funds toward maintaining legacy software products. This misallocation translates into limited budgets for innovating new products and modernizing legacy software, eventually resulting in a software product portfolio that is skewed toward end-of-life products.”

A New Phase in SPLC: Transformation

The Everest white paper introduces a new phase in the SPLC: transformation. Instead of progressing from the development phase to the end-of-life phase, transformation moves the curve up and to the right, unlocking more value and accelerating the innovation cycle at unprecedented rates.

Major factors driving software transformation across product lifecycles include:

1. Consumer: Consumers want to be connected to each other – and want their products to connect – in seamless and innovative ways. This has made software a critical element across the entire product life cycle and is the solution to keeping consumer attention long-term.
2. Industry: Beyond the customer, industries are constantly evolving and searching for the next best product or service. Faced with mounting environmental and customer pressures, organizations across sectors look for ways to define and differentiate alternate revenue streams – a process significantly influenced by connected products.
3. Technology: Advancements in technologies, like connectivity and artificial intelligence, have enabled use cases that would have seemed impossible even just a few years ago. Cloud is a significant driver of software-driven transformation, as it supports the optimization, control, monitoring, and autonomy of a product.

One example of software transformation is Apple’s launch of the iPhone in 2007. The old generation of cell phones operated on a contract platform. Consumers kept the same phone for years with no upgrades or updates, using the same features and ‘applications’ as when the phone was purchased.

While today’s smartphones include many advancements in hardware, it’s the software layer that transformed the phone industry. Smartphones are rolling out new upgrades and models at such a pace, that it is almost impossible for consumers to keep up. Rapidly evolving technology and continuous innovation allow customers to consistently enjoy new features, color choices, camera quality improvements, and more. The cellphone of old has largely seen its end of life, but software enabled a transformation in smartphones that resulted in billions of dollars in revenue – and trillions of dollars in market cap.

Conclusion

While software end-of-life is the right decision in some contexts, more enterprises should put software transformation at the top of their R&D planning. High customer expectations, speed of industry, and technological advancement should signal to leaders that software transformation should be high on their priority list. Leaders should evaluate how to incorporate these initiatives into their roadmaps.