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What is an independent software vendor (ISV)?

Learn what it means to be an ISV in today’s tech industry—and how to get started and succeed.
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Innovative, collaborative software vendors

An ISV builds novel software to run on other vendors’ hardware platforms and operating systems then offers it to customers through various agreements. ISVs increasingly use cloud computing to deliver their solutions as software as a service (SaaS).

Key takeaways

  • ISVs develop and distribute SaaS and other software solutions for vertical and horizontal markets.
  • Some examples of ISVs include companies that specialize in creating CRM and ERP systems patient management software, and collaboration and productivity tools.
  • ISVs and platform providers build mutually beneficial relationships that help drive delivery of innovative solutions to consumers and businesses.
  • ISVs benefit from recurring revenue, enhanced scalability, and greater flexibility and innovation.
  • Challenges of becoming an ISV include intense competition and overseeing licensing and compliance.
  • Succeeding as an ISV requires strong industry partnerships, continuous product improvement, and emphasis on customer satisfaction and loyalty.

How do ISVs operate?

Independent software vendors work with hardware, software, and cloud platform providers to build and distribute compatible applications that solve specific industry or market needs. Often, ISVs facilitate widespread adoption of their solutions by ensuring they are compatible with multiple operating systems and devices.

Examples of ISVs include companies that develop customer relationship management (CRM) and enterprise resource planning (ERP) systems for cross-industry use. Other, more niche ISVs offer applications tailored to address specific industry challenges, such as:
 
  • Patient management software for healthcare providers.
  • Barcode-scanning software for retailers. 
  • Student assessment software for educators.
  • Collaboration and productivity software for software developers.
Independent software vendors retain ownership of their software but offer use of their products to individuals and organizations through different software licensing and subscription models. ISVs with SaaS solutions often sell subscriptions through cloud marketplaces such as the Microsoft commercial marketplace.

Driving innovation and growth

ISVs play a distinct, significant role in the tech industry. They sell only software solutions that they develop on their own. This focus sets them apart from other IT solution providers, including:
 
  • Original equipment manufacturers (OEMs), which build hardware solutions and package it with software.
  • System integrators (SIs) and value-added resellers (VARs), which offer services for integrating, customizing, and selling other vendors’ products.
ISVs also work closely with platform providers in collaborative relationships that provide competitive advantages to both parties. Platform providers offer ISVs access to established platforms with the robust infrastructure they need to bring new solutions to market and expand their reach. Software vendors, in turn, help providers differentiate themselves by developing solutions that enhance their platforms’ core functionalities.

Together, ISVs and platform providers deliver a steady stream of innovative software solutions that ultimately benefit consumers and businesses.

What benefits do ISVs gain?

Startups and established businesses alike benefit in many ways by embracing the ISV business model. Here are some of the potential advantages of being an independent software vendor:
Recurring revenue: ISVs can create a steady stream of income by developing SaaS solutions made available to users through monthly or annual subscriptions. This approach not only helps ensure financial stability but also allows for predictable growth and long-term planning.

Enhanced scalability: By partnering with platform providers, ISVs can quickly and efficiently expand software distribution—and reach a broad, global customer base—without investing in physical infrastructure or devices. 

Greater flexibility and innovation: Unlike larger tech organizations, ISVs can quickly—and continuously—develop novel software solutions in response to evolving marketplace trends and customer needs. This agility gives them a distinct competitive edge. 

What obstacles do ISVs face?

The ISV business model also presents potential challenges, including the following:
Intense competition: To stay relevant and build market share in the software industry, ISVs must continuously differentiate their offerings. Larger ISVs with more resources often outpace smaller ISVs in terms of research and development, marketing, and customer acquisition.

Licensing and compliance: ISVs of all sizes must effectively deal with the time-consuming complexities of licensing agreements and product compliance. Regulations and standards—such as for managing intellectual property (IP) rights, adhering to data protection laws, and ensuring software security—vary by region and industry.

Customer support and satisfaction: To keep customers happy and reduce churn, ISVs must provide exceptional customer support. However, managing technical issues across diverse user environments—especially when operating on multiple platforms—can be resource-intensive.

Solution compatibility: ISVs often must ensure their software works with other vendors’ products, such as payment gateways. This requires careful coordination and testing to ensure compatibility and performance.

Steps to becoming an ISV

If you’d like to operate as an independent software vendor, begin with these key steps:
  1. Select your product market. Decide whether your software will target a vertical or horizontal market. In addition to considering your area of expertise, conduct thorough market research to identify marketplace gaps and opportunities to help ensure that your solution will be in high demand.
  2. Address business and technical requirements. Start with a viable business plan that outlines your strategy for app licensing, distribution, and marketing. Also, build a technical team with strong software development skills and find a platform provider that has a scalable, security-rich IT infrastructure that supports industry standards.
  3. Build strategic partnerships. Boost your marketplace presence and build trust with potential customers by joining ISV partner programs run by platform providers. For example, members of ISV Success gain access to tools, resources, and support for building, extending, and selling AI-powered solutions across the Microsoft Cloud.

Considerations for ISV startups

To ensure successful market entry and long-term sustainability, entrepreneurs who seek to compete as independent software vendors should pay particular attention to the following considerations.

Differentiation

Create a unique value proposition that sets your solution apart from competitors, whether based on price, innovative features, user experience, ease of deployment, or customer support.

Cloud-first approach

Take advantage of the benefits of cloud computing to quickly develop and deploy a SaaS offering. Cloud platforms such as Microsoft Azure also help ensure scalability, security, and performance.

Solution compatibility

Provide well-documented APIs so that your software will easily run with other technologies that your targeted customers use.

Data security and compliance

Given the sensitivity of data across industries, robust security features are essential. Also, ensure your company complies with data protection regulations, such as GDPR and HIPAA, and pursues industry-recognized certifications, such as for ISO 27001 and SOC 2.

Customer-centricity

Minimize the learning curve for your solution with an intuitive, user-friendly interface. Also, provide customers with excellent support and onboarding resources.

Go-to-market strategy

Develop a robust strategy that outlines your pricing model for each customer segment, specifies how your software will be sold—such as through direct sales, channel partners, or digital marketplaces—and provides clear messaging and positioning.

Capital and funding

Understand your financial requirements for product development, go-to-market initiatives, and customer acquisition, and plan funding rounds accordingly. Also, consider your long-term plans, such as taking your company public or merging with or being acquired by another company.

Legal compliance

Acquire appropriate software licenses and protect your IP through patents or trademarks. Also, establish clear service-level and other contractual agreements.

Talent acquisition and company culture

Hire experienced professionals or outsource noncore functions as needed to ensure that your company has the right skills. Promote employee and customer satisfaction by fostering a culture that emphasizes innovation, agility, and service.

Succeeding as an ISV

To thrive as an ISV in competitive marketplaces, adopt a strategic approach that includes:
Strong ISV partnerships: Build alliances with major technology players and platform providers to increase your ISV’s credibility and market visibility. Take advantage of offerings such as Microsoft Marketplace Rewards, which provides sales and marketing benefits to ISVs who publish apps through the Microsoft commercial marketplace.

Rigorous ISV certifications. Demonstrate that your software meets strict standards of compatibility, performance, and security by putting it through robust verification and evaluation processes established by hardware and other platform providers.

Continuous product iteration and improvement: Frequently roll out new software features and other updates based on customer feedback and market demands. Help ensure your software remains relevant and competitive by using agile development methodologies that support fast, efficient product development and iteration.

An emphasis on customer satisfaction and loyalty: Deepen customer relationships by actively gathering—and acting on—customer feedback. By maintaining a continuous feedback loop with customers, you can address their changing needs and preferences and deliver an excellent user experience. 

Start your ISV journey

Independent software vendors offer specialized software solutions that power organizations of all types, making them integral to the health and growth of the larger tech ecosystem.

If you’re looking to help your startup or established business become an ISV, prepare by fully researching the opportunities and obstacles associated with your area of expertise and industry. Once you begin the journey, position your company for long-term success by embracing the ISV’s role as an innovator and collaborator. And commit to evolve your strategy and software in line with changing customer and marketplace demands.
Resources

Learn more about Microsoft resources for ISVs 

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Frequently asked questions

  • ISV stands for independent software vendor, a company that develops and sells software solutions independently of hardware manufacturers.
  • ISVs create and sell their own software, while VARs focus on selling and adding value to existing software through customization or additional services.
  • OEMs produce hardware that often comes bundled with software, whereas ISVs strictly focus on developing software that can run on multiple hardware platforms.
  • An ISV specializes in creating and selling software for a variety of platforms and industries. A software development company engages in a broader range of activities, from designing and developing software solutions to deploying, and supporting them.
  • ISVs are prevalent in a wide range of industries, including healthcare, finance, retail, and manufacturing, where specialized software is needed.
  • ISVs can stay competitive by continuously innovating, responding to customer feedback, and forming strategic partnerships with major platform providers.
  • Through ISV partnerships with Microsoft and other platform providers, ISVs can build their software solutions on robust infrastructure, expand their customer bases, and enhance their credibility.