Hello everyone and welcome back to our course, our course on commercial open source software

startups and how to spin off such a startup from university.

My name is Dr. Griele and this is the second lecture in the first part of the course on

the software industry.

This particular lecture then is on software products because that's the basic backbone

of what companies sell and since we are interested in software vendors which are low-spending

startups we will have to look at what exactly it is that we can actually sell to have a

sustainable business.

So I will talk about software as a product, in particular about underlying intellectual

property that products are created and structured from and then I will walk you through the

complex structure of what makes up initially a core, then a basic and finally a whole product.

We also need to understand that products are made from parts and this is not meant primarily

from an engineering perspective but from an intellectual property perspective because

whoever else's work you're using they'll get a cut of your revenue one way or another.

So with that what is software as a product?

Well we can recap a little bit.

We already know that software products are products so they are goods man-made, sold

to customers in the market.

Software then specifically is a digital good.

It doesn't rot, it's not tangible, it's not physical but it does become tangible through

physical devices but itself is data, it's computer instructions that make a computer

do something.

From an economic perspective a software or a software as a product is intellectual property

to which you usually sell usage rights by way of a license and we will cover all of

that in a bit.

There are unique properties to software.

The near zero copying cost which leads to this weird step function where you have a

high investment to get to that first copy of the software and then almost no cost to

get to the second copy.

Of course you'll keep investing and further developing the software but from a technical

perspective creating more copies has near zero cost.

Software is born, lives on, eventually dies though there is no set end date and as we

also saw last time it can be changed very easily in the sense it's very malleable giving

us some significant innovation speed and advantages over traditional physical products.

While the engineers among you also know sometimes you want to make that change and can change

things easily but it doesn't necessarily lead to a good outcome so software can also become

hard to change in a consistent way.

This lecture and the whole course really is based on the idea that products or involves

the idea that products have a structure and that you can build out a product from humble

beginnings and that basically you then need to view a product as something that you start

building and extend and expand.

And this is what you can see here where the initial product is typically what we call

a core product, the essence straight from what we will learn later as a minimum viable

product.

And that core product is usually the initial software, basic software maybe with some additional

functionality barely enough that some customers will be buying and many won't be buying because

that's just not yet good enough.

A core product is extended and becomes a basic product if by way of licensees you can give

your customers some assurances like you certify the software that it really works well on

some particular hardware, some customers may require that.