Value creation in software service platforms

Abstract

In order to benefit from operating an IT service platform (e.g., SaaS platform), platform providers need to find a way to keep their existing users and application services active sources of value. However, the understanding of how to achieve that is limited due to the newness of this kind of business. This paper investigates whether all stakeholders of the platform ecosystem can generate sufficient value when participating in the platform. As stakeholders, we consider application service users, service developers, and service platform providers. We also analyse the interrelationship between these stakeholders. The analysis outcome is a value creation model that allows the calculation of the stakeholders’ values. The model also helps inferring the relative impact of different factors on the evolution of values of the software service platform stakeholders. Our simulation results confirm that all stakeholders of a service platform mainly benefit from a growing installed base of application users. However, in a mature market, a large service variety mainly benefits the service platform provider, while the other stakeholders obtain a reduced increase in their benefits. In particular, the utility growth of application users becomes constrained as the benefit from new connections with other users decreases and the number of new services used decreases. Similarly, the revenue of service developer decreases, making service development less profitable. Therefore, we can state that not only a large fraction of the value creation goes to the platform provider but also that the software service ecosystem can collapse, if no mutually beneficial pricing of services is implemented.