Archive for the ‘B4B’ Category

How are tech companies tracking customer consumption?

November 24, 2014

For the past year, TSIA has been conducting research related to how our member companies understand how their customers are actually consuming technology offers. We call this field of research “Consumption Analytics.”  This field is becoming critical as customers migrate to “technology as a service” business models where they only pay for what they actually consume.

Currently, we are conducting an industry survey on the topic. Below is information on how you can participate and receive the insights from the survey data.

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What metrics should we measure, and how can we leverage that information to improve our services? The choices are many, and it’s a challenge that transverses all service disciplines. If you are actively monitoring and utilizing streams of product and service data, or if you are just starting to create your analytics plan, we invite you to participate in TSIA’s Adoption, Consumption, and Outcome Metrics Survey:

Click here to participate in the survey

This 20-minute, 13-question survey will collect core data on how companies measure purchase, installation, consumption, and outcome metrics; and more importantly, how they leverage these data streams. All participants, regardless of their analytics process maturity, will receive a summary of the data collected and be invited to a private webinar discussing the results.

Deadline for submission is Wednesday, December 17, 2014.

Thank you for your support of this important research initiative. For questions on this research, please contact Jeremy DalleTezze at jeremy.dalletezze@tsia.com.

 

 

 

Digging Economic Moats

November 8, 2014

Dear Reader:

So sorry it has been so long since I have posted on this blog. At TSIA, we have been very busy helping our members navigate through the current industry transformation related to technology business models.

If you missed us at our most recent conference in Vegas last month, I am posting a link to my keynote.
https://www.youtube.com/watch?v=92q360ckbsk&feature=youtu.be

In this presentation, I ask and answer the following four questions:

1. What are the attributes of highly profitable revenue?
2. Why are technology companies facing a potentially dramatic decrease in profitability?
3. Why are emerging technology as a service companies not generating profitable revenue?
4. What can be done to make technology as a service a profitable business model?

For TSIA members, this a paper that supports this presentation:

http://www.tsia.com/documents/Digging_Economic_Moats_for_XaaS_Business_Models/

Enjoy!

So you want to sell outcomes?

November 7, 2013

In the book B4B, we predict that technology customers will begin pressuring technology providers to commit to outcomes.  In other words, customers will not want to pay for technology up front and hope they achieve some target outcome. Customers will want their technology providers to assure the outcome is achievable. This is not how the vast majority of technology providers are paid today. In today’s model, technology providers are paid up front for their technology wares. Then, the customer pays more to the technology provider (or service providers) to achieve a target outcome. If the customer never crosses the outcome goal line, the technology provider is rarely forced to provide a refund. How many tens of thousands of ERP and CRM systems have been purchased in the last twenty years? How many thousands of those implementations failed? Yet, how few times we have read where the technology provider was being held accountable for the failure. That painful gap between the promise of what was sold up front and the reality of what was delivered is closing.

With the release of B4B, we have been overwhelmed by the support of the general premise: successful businesses will be committed to their customers’ success. This means technology providers will commit to helping their customers achieve specific business outcomes. Enterprise technology customers are loudly telling us this shift is long overdue.  Technology providers are quietly agreeing. In fact, we are beginning to see real world examples of technology providers committing to outcomes.

In my keynote at TSW in October, I mentioned four technology companies that are selling outcomes:

Google

Google makes almost every bit of its profits by selling ads. If you have ever leverage Google Ads, you know that you only pay Google if and when a potential customer clicks on your ad. You don’t pay Google just for the privilege of displaying the ad.

Rackspace

Graham Weston, the co-founder and Chairman of Rackspace, spoke at TSW. Rackspace has built their entire business model on the premise that customers should only pay for the computing power they need to consume right now.

Satmap

SATMAP has advanced artificial intelligence and pattern recognition technology to help optimize call enter interactions. What is really interesting, is that they will install that technology at no charge to the customer. They will only get paid when the customer achieves specific KPI improvements such as higher customer satisfaction ratings or higher agent productivity. From the Satmap website:

ALL RESULTS, ZERO RISK

We partner with clients to provide SATMAP both on a licensed and on a pure benefit-share basis.

In both cases, SATMAP requires no up-front capital investment. We take care of setup and deployment; you see the results.

Redflex

Redflex sells red light camera technology to cities. Like Satmap, Redflex does not charge cities huge upfront fees for the technology and implementation of the technology. Instead, Redflex takes a percentage of every ticket issued to motorists that run a red light.

These examples are excellent reference points for technology companies that want to get into the business of selling outcomes.  They represent the three types of outcomes technology companies can potentially market:

  • Type 1: Consumption as an Outcome. The customer only pays when they actually consume something. The outcome is the usage. Google Ads and Rackspace are Type 1 offers.
  • Type 2:  KPI as an Outcome. The customer only pays when they have achieved an agreed upon target KPI. For example, customer retention rates improving by 5%. Satmap has a Type 2 offer.
  • Type 3: Financial Improvement as an Outcome. The customer only pays when specific financial gains have been achieved (cost savings or increased revenue). Redflex has a Type 3 offer.

Figure 1 shows this spectrum of outcome based technology offerings. If you want to get in the business of selling outcomes, this taxonomy is a great place to start the conversation. Especially since it gets harder as you move from Type 1 to Type 2 to Type 3 offerings. So, what types of outcome offerings is your technology organization developing? If the answer is “none” I strongly recommend you send a copy of B4B to your Product and Sales leadership teams–and hope they read it before your customers do.

Outcome Types

Reaction to B4B

October 29, 2013

In Vegas last week, over 1,000 professionals from the technology industry gathered at the Technology Services World conference where our latest book, B4B was officially released.
 

The overarching premise of TSIA’s latest book B4B is quite simple:
The operating models of technology providers are about to be revolutionized.

Why? The historical operating model of technology providers was designed to optimize a supplier’s “push” of prepackaged products to customers via large, up-­‐front deals. The goal was usually to get the maximum amount of product assets transferred from the supplier’s balance sheet to the customer’s balance sheet in one big order. However, two trends are dismantling this historical model. First of all, the value of the core technology asset is commoditizing. Technology companies are not achieving the same margins they once did when they sold a technology asset to the customer. Commoditization is a well-known challenge to many hardware companies, but the trend is expanding to software companies as low prices SaaS models reset customer expectations. Secondly, customers are pursuing new consumption models that do not involve a large up front product purchase. This is forcing technology companies to create new ways to offer their technology where the customer pays as they consume. These two trends of “commodization” and “new consumption models” are dismantling the historical economic engines of most technology companies. So what to do?
TSIA believes that revenues and margins in the technology industry will be directly tied with the ability to help customers achieve actual business results. Instead of focusing on features, successful technology companies will focus on realized value. This means technology providers will have to embrace the following success tactics:

  • Align technology and service offerings to specific business value for the customer
  • Define and deliver services that accelerate the consumption of technology capabilities
  • Define and deliver services that drive specific business outcomes for customers
  • Modify pricing models so that customers only pay when they achieve specific business value from the technology
  • Leverage data streams from the product to clearly understand how customers are using technology
  • Employ analytics to clearly understand how customers can achieve the greatest ROI from technology assets

These are but a few of the tactics technology providers will need to embrace to succeed in the next generation of the B2B relationship.

At TSW last week, we spent three days discussing and debating this fundamental shift facing technology providers. TSIA CEO JB Wood overviewed the B4B framework for the audience. Keynote speaker Graham Weston, the founder and Chairman of Rackspace, provided a compelling case study for what the next generation of technology providers will need to look like. Nick Earle, who manages Global Field Service Operations for Cisco, spoke specifically how Cisco has embraced the B4B framework to help transform its business model. I ended the conference by overviewing how B4B concepts will impact the financial models, service offerings, and organizational structures of all technology providers.

 

If you missed this conference, you missed a watershed event for the technology industry. In my mind, this event marked a moment in time when hundreds of technology companies acknowledged that their traditional business models would need to change. The question facing all of these companies has become quite simple: What does our new business model look like? B4B provides a compelling framework to craft that new business model. And based on the reaction in Vegas last week, the framework seems right on the mark.

 
All of the keynotes were videotaped. If you are interested in watching them, please send me an email and I will notify you when they are available online.

Outcome Based Services Portfolio

September 24, 2013

With the release of the book B4B this October, TSIA is focused on helping technology companies. Helping these companies brace for a radical shift in their business models. A shift away from selling product assets and produce attach services to delivering business outcomes for customers.
As stepping stone in this journey, TSIA is working with member companies to create a set of frameworks related to outcome based services. These frameworks will cover:
-Three different levels of outcome based services
-The process for successfully defining an outcome based service
-Outcome based pricing models
-Taxonomy for outcome based offerings

During my keynote at TSW in Vegas this October, I will be walking through some of these frameworks. As a step in journey, I wanted to publish a taxonomy for outcome based technology service offerings. This taxonomy is based on the offers we see emerging in the marketplace and the offers we believe technology companies will eventually need to establish. A white paper on this taxonomy will be released at TSW. Enjoy!

The historical service lines outlined in the opening section of this paper (professional services, education services, support services, etc.) all offer capabilities focused on the technology asset. As the service portfolio shifts to being more focused on business outcomes, these traditional service categories become less relevant. What is the specific business challenge the technology provider can solve for the customer? This is what becomes relevant. Instead of services that are centered on keeping the technology asset up and running, the technology provider will have services that are designed to reduce operational complexity, accelerate the usage of technical capabilities, and ultimately deliver quantifiable business impact. As the services portfolio shifts from left to right, there are natural categories of service offerings that product companies can choose to offer:

Optimize Services

These are services designed to help customers optimize their use of technology capabilities. There are two distinct types of optimize services TSIA believes product companies will provide to customers:

  •  Operational Services. These are services designed to reduce operational complexity for customers. They include capacity planning, remote monitoring, risk audits, and system administration. The main objective of these services is to minimize the cost of operating a technology.
  • Adoption Services. These are services designed to help customers maximize their usage of technical capabilities. Unlike traditional education services, these services involve usage analytics, user adoption reports, and intelligent feature provisioning. The main objective of these services is to maximize technology adoption.

Outcome as a Service

These are not the historical “bundles” created by product companies where service offerings are wrapped around a product and sold to the customer at some bundled price. These are offerings where a provider bundles the products and services required to guarantee a target business outcome for the customer. In other words, the provider is masking any complexity from the customer and simply committing to deliver a specific outcome for the customer. A simple real world example of this service category would be how red light camera technology is sold to cities throughout the country. Cities do not pay for the cameras or the installation of the cameras. The vendor is given a percentage of each ticket (the outcome) issued from the cameras. The figure below highlights these emerging service categories.

 

Outcome Based Services

Figure 3: The New Services Portfolio

Some of these new service categories are names that are not commonly used in the marketplace. Yet, technology companies are already migrating their services into these categories. Software giant Oracle offers “Advanced Customer Services” designed to monitor systems and reduce operational complexity. SaaS provider salesforce.com has a set of “Premier Success” services that are designed to monitor usage and help customers accelerate adoption. And Siemens offers workflow optimization services for laboratories using Siemens equipment. It will be important for product companies to clearly define these four categories of service offerings. Why? To reduce the tensions already emerging between legacy service lines. Existing Support Services, Professional Services, Field Services, and Managed Services organizations within the same product companies are stepping on each other with competing and overlapping service offers. This redundancy is costly to the product company and confusing to the customer. Which leads to another emerging topic at TSIA: Outcome Based Organizational Structures. But that is a topic for another day.