Posts Tagged ‘TSW’

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

Consumption Economics at the Processor Level

October 11, 2011

Well, we are getting down to the short strokes regarding our preparations for TSIA’s industry conference this month in Las Vegas. At this conference, we will be presenting concepts from our latest book: Consumption Economics: The New Rules of Tech.

One of the key premises of the book is that the economic model for technology companies will dramatically change with the advent of cloud and subscription based consumption models. I won’t go into all the details here, but envision a world where technology companies make money per feature or per transaction as customers actually consume technology. This is very different from the current model where customer’s pay a chunk of money up front to purchase hardware and software. The difference in these two models is summarized in the image below.

We have been talking to many product companies about this move to a consumption based revenue model for the IT industry. Some are already seeing the shift. Others are skeptical. Well, I stumbled on a perfect example of consumption economics playing out at the processor level. Intel offers a processor upgrade service that allows customers to download firmware updates that unlock better performance. Here is how the service is positioned on the Intel web site:

Intel Upgrade Service provides your end customers with easily upgradable hardware so you can deliver the capabilities they want as they are needed.  Budgets are tight and many small and medium businesses may not be able to justify a fully-featured system right now, yet would  like to have that option in the future.  Upgradable hardware is the answer.  When your customers purchase a PC with qualifying Intel CPU  and Chipset, they have a system that can grow to match their needs, and you have an opportunity to provide more services to that customer over time.

So, the next time you upgrade your O/S and it grinds your system to halt, you don’t have to throw away the machine or throw out the processor–you may simply need to download an upgrade from Intel for a few bucks. This is the perfect example of consumption based economics in the world of technology.

Join us in Las Vegas this month as we discuss how consumption economics will impact the business models of product companies. It is gonna be a bumpy ride…

 

Industry Buzz

May 10, 2011

On Monday, the TSIA research team huddled to debrief on key themese we heard at  TSW Santa Clara last week.  The TSIA research team made the following observations from TSIA membership discussions:

1. The Impact of Market Trends on Service Models: At the conference, TSIA described how market trends such as cloud computing, utility computing, mobility computing, and social media are all combining to create significant disruption in current service business models. Members are looking for more examples of how companies are navigating these disruptions. Specifically, in the areas of new financial models, new service offerings, and new organizational structures. 

2. Rev Gen Responsibilities: Embedded service organizations have always been responsible for helping to attach their services during the product sale. Support organizations have always been responsible to helping to renew support contracts. However, service organizations are now being called upon to manage the renewal of product subscriptions. In fact, some services organizations are finding themselves responsible for managing the total account spend for customers after the initial contract is signed. This shift in responsibilities is forcing services organizations to pursue and implement new best practices related to driving account renewal and growth. 

3. Services IP Capture 2.0: With baby boomers beginning their great exodus from the workforce, service organizations are more anxious than ever to capture the expertise of these exiting knowledge workers.  In addition, there is a renewed push within professional service organizations to capture and organize engagement assets in more effective ways.  Interestingly, support service organizations that pursue “knowledge centered support” tactics are providing some of the best in class examples of how to capture and repurpose knowledge.

4. Educating Education Services: The Education Services community continues to expand at TSIA conferences. One theme that emerged from this community was the challenge of creating education offerings that are intertwined with professional service offerings to create an overall offering that drives successful product adoption. Another theme was related to changing delivery formats. For example, Citrix Online was demonstrating a product that captured interactive problem solving customer sessions. One member commented that these sessions could be repurposed as education modules.  This shift from standard five day, onsite training sessions to short, consumable and on demand videos could have a dramatic impact on education service business models.  

5. The SMB Paradox: Small and medium sized service organizations often have urgent and basic questions regarding service optimization.

  • “What kinds of questions should we put on our CSAT survey?”
  • “How should we deliver our CSAT survey?”
  • “What are the advantages of skills based routing in support services?”
  • “How do professional service organizations calculate utilization rates?”

At the same time, thanks to cloud computing, SMB service organizations are gaining access to the same sophisticated tools that larger service organizations have. This leads to a paradox in some SMB service organizations where the impact of state of the art technology is being handicapped by the lack of maturity of internal processes in many instances.

6. Getting Chatty: Support Services organizations are aggressively implementing infrastructure to support chat—already a popular consumer channel– as a support mechanism for enterprise customers.

7. Managed Services Matters: Managed Services continues to be a growing portion of the services portfolio for many TSIA members. There is a growing desire to begin benchmarking both the practices and results related to this distinct service line. What are typical margins for managed service contracts? What are typical contract terms?

8. Refreshing Business Model Definitions: TSIA benchmarks the financial business models of individual service lines. With changes in the industry, specific service lines are interested in revisiting the business model line item definitions used by TSIA to better align with common industry practices in how costs are allocated.

As always, the rate of change never seems to slow down in the world of technology services.

The good news: the majority of these key threads are already on the radar screen on the TSIA research staff.  Check out the  TSIA 2011 research agenda to see the inventory of the surveys and reports the TSIA research is executing for the calendar year.

The bad news: the amount of transformation that is likely to be required to the strategy, structure, and skills of technology service businesses seems almost overwhelming at this point in time.  If you are not already reshaping your services business but simply optimizing your current models, you are likely optimizing yourself right out of relevancy.