Michael A Cusamano, distinguished professor of Sloan School of Management, Massachusetts Institute of Technology, believes that the world will see a very intense battle between IT product firms and IT services firms.

Hybrid companies, he said are the next buzzword in the IT industry. He was speaking at the ongoing Nasscom Leadership Meet in Mumbai.

"Beware of collapsing product prices. The new business model should be hybrid, a blend of both service and products," added Cusumano.

Will most software firms ultimately become service firms then?

"Companies could decide to give away their products for free. They may not want to charge a licence fee. They may simply have a subscription model and make their money from servicing and maintaining the product," he explained.

In the US, companies that focused on products have declined from 313 in 1997 to 170 in 2004, he said. "As the profit margins are declining, there is a tremendous shift to hybrid companies and services sectors," added Cusumano.

Elaborating on the issue, Cusumano said the service and maintenance cost for product companies have dramatically increased so it is necessary to manage this change strategically. While the cost of research and development is too high compared to the revenue generated by the products, Hybrid companies, he said, would yield stable and higher profits.

Thus an ideal model would be to develop a criss-cross of products and service, add value and make products 'stickier', he said.
Citing the example of Oracle and SAP, Cusumano said two organisations in the same company to develop products and customer solutions efficiently would be an ideal solution.

Speaking on India, Cusumano said the country must figure out ways to compete with global players. "Focus on 'Made in India' products, as European and US made products are not best suited for the Indian, Chinese and South East markets," he added.
India, he said, should establish itself as a differentiator in terms of services. In a nutshell, Indian companies have to be global with a local base. They will have to learn to thrive and not just survive, added Cusumano.

Cusumano teaches strategic management, technological innovation and entrepreneurship, and the software business.

He has published eight books - The Business of Software; Microsoft Secrets and Competing on Internet Time are a few prominent ones.

Additional inputs from Business Standard