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Platform as a service (PaaS) has become a strategic option for software vendors who expect to benefit from value co‐creation with partners by developing complementary components and applications. In reality, however, established and new software vendors are battling to redefine their offering to embrace PaaS. They face the challenges of transforming, configuring and calibrating their PaaS business models to align them with existing business models, customer expectations and competitive pressures. This motivates our research question: How can software providers design viable business models for PaaS? Our study develops a design theory for PaaS business models. This theory is grounded on a 12‐month action design research study at one of the largest global software companies (here called Alpha) with mixed PaaS experiences in the past. Our primary research contribution is a set of design principles …