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Software and SaaS Vendors are disrupting themselves

Software and SaaS Vendors are disrupting themselves

Introduction

Before Cloud, Saas, Social Business or any of the myriad of buzzwords currently common to our business day came Apple Inc. with their consumer orientated devices, iTunes and AppStore and changed the buying and consumption habits of people around the globe ... forever. 

This in turn, has impacted heavily on the expectations of these same consumers when transacting in their business lives, the result of which has substantially affected the commercial models and operational complexities of the business software industry.

In this paper, we will explore the impact that this has had on the software industry and how the disruption the industry itself is trying to create is in fact disrupting them at the same time. We will also look at how the internal systems of software vendors need to be enhanced to cater for this disruption so as to keep them relevant in this changing landscape.

We call it the 4 Pillars of Disruption and is centered around the following broad factors:

  • New and multiple sales channels being used
  • Deployment of new license types and revenue models
  • Changes in buyer engagement
  • The “Unanticipated” elements

 

Pillar 1 - Multiple Sales Channels

Whereas in the past the sales channel was a simple chain of events – it would typically go from vendor to distributor to reseller and finally to the end customer but that has now changed. While the legacy approach still exists, there is now also on-line, in-app and mobile transacting both directly with the consumer and indirectly through the supply chain. Then there are new go-to-market channels continually being created - consider that Google now offers a “Buy” button on search results.

These are all great for getting products (cloud or on-premise) sold but how do you  manage these sales and how do you enable and engage your resellers and distributors across all those channels ?

Pillar 2 - New License Types and Revenue Models

Gone are the days where you simply went out and bought a license to use a piece of software and installed it on your in-house computers.

Today there are a myriad of options including mobile licences, on-premise licences, subscriptions licences, cloud licences and hybrid licences with a growing scenario of having part of the license on-premise and part in the cloud.

The revenue models supporting these various license types only add to the complexity. Consider that in a single customer you could have on-premise products that are sold as subscriptions together with a cloud solution that is sold based on a multi-year contract (much like the legacy license model) and there could also be a cloud solution sold as subscription from an ISV.

So not only are there mix and match license types but also a range of revenue and billing methods to go with it.

This does provide choice for the market but how is this all managed in a way that protects the vendors product and revenue while engaging the supply chain and maintaining a quality and simple customer experience ?

Pillar 3 - Changes in Buyer Engagement

In the past customers would have typically engaged with their trusted advisers early in the sales cycle to work through their requirements, have solutions demonstrated and to have proposals presented.

Fast forward to today and what we find now is that customers engage much later in the sales cycle – they shortlist and do all kinds of investigation long before they start talking to the salesperson.

There are numerous reasons for this change in buyer engagement dynamic including the fact that millennials are taking up decision making roles and are comfortable with the new approach to selection together with the fact that the information available today is easy to reach and rich in content and social networks provide instant feedback. Not to mention that the process does not require a “pushy salesman”.

How does the software vendor track, understand and engage prospects and repeat customers before they pick up the phone to call the sales team ?

Pillar 4 - Unanticipated Challenges

Some considerations vendors may not contemplate in this changing landscape, include ...

Solution building

There’s an interesting statistic from IBM that 25 percent of all salespeople’s time is spent on solution building – trying to find the product/s that will enhance the core to deliver the customers solution. IBM also discovered that more than 65 percent of deals that are lost are lost because they could not find the solution.

Considering Pillar 3, if it is this difficult for a salesperson, then it is likely to be substantially more difficult for a customer.

Building the ideal customer solution would comprise the vendor products plus 3rd party (ISV) products and services (Partners). For cloud, this requires the ability to easily procure, provision and use multiple products from multiple vendors and ideally these should be included into unified license or subscription billing.

Brand Management

Third parties generate substantial revenue off the back of popular brands, however, the brand owner has little visibility of this and does not get to share in the revenue.

There is an argument to be had that it is because of these third parties that the brand is successful in the first place but based on our research, the investment made by the brand is exponentially higher than the contribution made by the third party ... in essence, while useful to have the third party involved, the brand would survive perfectly well without the third party.

Given the constant conflict between budgets and investing into the channel, vendors need to consider taking a share in the brand  revenue and using that to re-invest into the success of their channels.

Building Repeat Website Traffic

It is far cheaper and effective to sell to an existing customer than to find a new one. However, once a customer has purchased their solution there is no ongoing compelling reason for them to visit the corporate website. Spam and privacy rules are also making it really difficult to send outbound hooks and in the B2B environment, social networking does not drive traffic in the same way that it does in the consumer space.

In a study completed by CallidusCloud ... “Facebook and twitter do not bring in Leads” ... So to bring them back, new marketing and customer engagement strategies are needed.

E-commerce and Payment Processing

E-commerce is fundamentally changing B2B commerce. Businesses are continuing to shift resources from brick-and-mortar and other traditional sales channels to an e-commerce environment.

A recent study conducted by Forrester Research shows that 89 percent of B2B providers said adding e-commerce to their business increased annual revenue by 55 percent. Meanwhile, 81 percent said selling online drove up their average order value by 31 percent.

The benefits of E-commerce selling are big however doing this while offering multiple license types, different revenue models and extended sales channels needs a complete rethink of the operational systems of the organization.

E-commerce also brings with it the need to have every transaction paid. However taking into account multiple payment methods, multiple payment geographies, local legislation, risk and fraud management, PCI compliance and a multitude of other challenges, highlights the need to ensure that this is all made easy both for the vendor and for the customer.

For the complete report and solutions to the disruptive elements, download the White Paper here

 

 

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Take Your Channel With You

In most cases, a multi-channel B2B Commerce strategy actually grows sales in a company's sales channels. However, to ensure that your channels adopt and promote your B2B Commerce initiatives, here are a few best practices that can assist in taking your channel along for the ride.

Let your dealers and distributors offer the best pricing. This is probably the #1 way you can avoid channel conflict as a B2B company. Undercutting on price is a huge no-no as it positions you as competition for your channel network. Refuse to undercut your local channel on price. Give your channel network the edge on price--they keep their foot traffic and you make up the difference in increased margin on online sales.

Promote your dealers and distributors on your B2B Commerce site. Your commerce site is going to catch a lot of attention from search engine crawlers and new customers alike. While B2B Commerce is a growing shopping method for a lot of businesses, there are still a fair number of who research online but still want to see a product in person before buying. Help those customers find a dealer near them and pass the leads on to your channel partners for follow-up.

Create special dealer- and distributor-only promotions--and then promote them online. While it might seem counter intuitive to promote in-channel sales and discounts on your B2B Commerce site, it's actually a good commerce practice for avoiding channel conflict. Your physical locations get the boost from real-time only offers and promoting it on your site lays the bait for those "researchers" who might otherwise defer their purchase until a later time.

Provide the systems needed to effectively run a multi-channel on-line business. The B2B Commerce platform you use to run your marketplace and to deliver the features and functions needed by your channel and end-users is essential to ensuring that the decision and purchasing process delivers a great experience and so that you can properly manage your entire value chain.

B2B Commerce holds great opportunity for you and your channel if implemented properly. But one things is for sure, any software vendor that does not have a multi-channel B2B Commerce strategy will find their sales coming under increasing competition and if they do not take there channel along with them, they will lose a substantial part of their sales and service capability.

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The Skills available in your ecosystem are critical to your success

Skills MarketPeople and businesses with a diverse set of skills make up the software vendor’s ecosystem or supply chain and these skills are critical to the successful sale, implementation and support of systems for end users.

Having visibility of these skills on a global basis provides an invaluable tool for ensuring that the vendor remains competitive by knowing where skills can be deployed or where training and recruitment may be required.

For service providers wanting to promote their specialist skills and for customers needing these skills, a web search engine cannot provide the fine grained results showing the availability of approved skills resources quickly and easily.

Where new projects are being resourced, simplifying the process to promote the project and invite responses for the provision of the services required for the project would make the customers life a whole lot easier.

A Skills Market would provide a substantial solution to these issues and would ensure that:

  • Projects are efficiently resourced
  • Channel partners, with the appropriate skills, can be found and contracted
  • The customers can quickly and easily find appropriate resources to assist with their projects

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Build Channel Adoption of Your Cloud Initiatives

a1sx2_Thumbnail1_Cloud_adoption.jpgFor those vendors that rely on their channels to go to market, there is the challenge of motivating them to adopt new business, deployment and revenue models. 

In this post, we look at some of the challenges being faced and solutions to them.

Revenue Sharing

In the past a license would be sold, the customer would pay a lump sum fee and the partner would take 30% of the proceeds.

The license fee, if we were to ignore annual maintenance fees for this purpose, represented the lifetime value of the deal and all parties involved would share in it.

With the shift toward subscription based licensing models (whether on-premise or SaaS/PaaS/IaaS), the revenue sharing structures seem to have shifted with them in that vendors are reducing the percentage they offer and also it is being spread across the lifetime of the subscription … in some cases even the period of earning for the subscription is limited.

Given that we are not talking about short sales cycles typically associated with SMB Cloud Apps, the cost and risk associated with the sales process is borne by the partner and yet the return is lower and spread over a period of time … this automatically creates a barrier to them eagerly promoting the new model and where possible will always revert to the on-premise model.

To get the channel to eagerly adopt the new models, it is essential that the lifetime value of the deal be properly measured and that an equitable share be offered to the partner.

Take a look at this article for further insight into channel compensation … “Cloud Channel Challenges | SaaS Channel Compensation”

Solution Building 

The vast majority of systems sold are made up of components both from the core vendor products as well as those from development partners. Where the complimentary products are not available, a solution cannot be built for the customer and so the deal is lost.

In a study completed by the Cloud Industry forum in their white paper “The critical role of channel in driving cloud adoption” shows that end users value above everything else, the solution that can be delivered. So for the channel to be more effective, building solutions has to be very high on the agenda.

A salesperson typically spends up to 25% of his time researching solutions and 60% of all sales lost are indirectly related to not being able to build the appropriate solution.

Centralizing all the products into a marketplace makes research and consumption of these products much easier and so success rates and the time taken to build the solutions are improved.

For the channel this reduces the sales cost and increase hit rates and so improves their appetite for cloud adoption.

As a by-product, this marketplace also builds new opportunities and simplifies the sales process for complimentary product developers and so enhances their loyalty to the vendor.

Administration and Systems

Critical to the channel partner is the ability to manage his customer relationship. However, when melding this with the vendors desire to get closer to and have more control of the relationship with the end-user, the question starts to beg as to how the transactions between all the parties are managed.

The channel would not be in a position to build the platforms needed to manage the transactions and relationships so given that vendors are the glue that bring all the parties and products together, they would need to provide systems to …

  • Sell through multiple channels with multiple parties involved
  • Assign customers to channel partners
  • Provide both core vendor products as well as complimentary products (and in some cases still offer the on-premise products as a part of the solution)
  • Automate the provisioning of the solution across multiple vendors at the same time
  • Bill customers
  • Collect payment
  • Automate and manage the revenue sharing across the channel

… resulting in easily managed transactions giving both vendors and channel visibility of and control over their mutual customers.

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