← External Forces: Digital & Technology (all topics)
Product IP vs services wrapper
What it is
Whether revenue comes from licensing a product that scales without proportionate cost, or from the implementation, customisation and support services wrapped around it. Indian software companies often earn most revenue from the wrapper
Product revenue carries software margins; services revenue carries services margins
Impact on industries
- Genuine product IP scales - the tenth customer costs far less to serve than the first, which no services business achieves
- Vertical SaaS and domain platforms let a smaller company own a niche where global horizontal vendors do not compete
- A high services share means the company is a services business with a product attached, and should be valued accordingly
- AI in product engineering compresses the development cost advantage that Indian product firms relied on, since the same tools are available globally
- The product-to-services ratio is the single most useful disclosure for judging what kind of company it actually is