Truths and Myths about the Croatian IT Sector: Is it Better to Have a Product or a Service?

In the domestic IT sector, especially since the global crisis has emerged, a distinction has recently been made between companies that develop their own software products and those that sell their services (agencies). While the former have remained relatively unscathed during the crisis, thanks to their work on their own products, the latter have been more affected: projects have been canceled, layoffs have occurred, and businesses have been restructured.

However, the situation is much more complex and varies from company to company. Due to the overarching narrative that it is preferable, but also more challenging, to develop one’s own product, it is necessary to debunk the myths regarding the advantages of product-based IT companies over service-based ones and vice versa, as well as to define what a product and a service actually mean in a software sense. It would also be fair to show future entrepreneurs what they can expect from both business paths and what the consequences are of transitioning from a service activity to a product-based one.

For illustration, software products include, for example, Infobip’s comprehensive platform, which made it the first in Croatia to achieve unicorn status. The well-known application for solving mathematical problems, Photomath from the same company, which was sold to Google last year, is also a product, as is the financial application Aircash or the Sofascore application for tracking sports results from Sofa IT. Globally speaking, digital platforms like Facebook, Instagram and TikTok are also a type of product, as is the popular artificial intelligence tool ChatGPT. Simplified, every application, platform, tool, program, and even video game is a software product, while IT services include all types of maintenance, support, and system updates. Therefore, the business models and processes of IT companies, depending on whether they offer a product or a service, differ significantly; among other things, in terms of resilience to crises.

IT companies focused on creating new products are more competitive in the market, have greater long-term growth and export potential, and are more resilient to crises. However, no one can guarantee that the product will survive in the market. On the other hand, those that only sell their services initially generate revenue and profit faster, but in times of crisis, they are the first to lose jobs. However, they are precisely what all other sectors of the economy need for a faster implementation of digital transformation.

Through conversations with representatives of the most well-known domestic IT companies, we discover whether they had a product from the beginning, what the advantages and challenges of products versus services are, and whether a transition from an agency to a product company is possible and, in fact, necessary.

In addition to separating a product company from an agency, there is another way to approach product development from an agency business model. This is the venture building model, which involves developing products for multiple startups, and you can read all about it in the new issue of the printed and digital edition of Lider.