© Saxum Commerce
© Saxum Commerce
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:
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 ...
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.
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
© Saxum Commerce
While the promise of new and large revenue streams for business software vendors is driving huge investment into developing cloud strategies it seems that there is much being overlooked in the process.
Building the cloud product strategy is just the starting point with a number of areas being sorely neglected and which will come back to haunt technology executives in the near term
As a part of a comprehensive roll-out, the following represents some of the items that should be addressed …
Most vendors will have existing legacy customers that will take time to cross over to cloud and there will still be a substantial demand from new customers that wish to stay with on-premise solutions.
The challenge here is how to build a hybrid sales channel that caters for both cloud and on-premise customers and where the customer can engage in an individualistic way.
For example a customer may want to review, test and purchase an on-premise solution through the web whereas another may want the same solution but wishes to engage a channel partner from the outset. The end result is the same but the path to the result is substantially different and needs to be catered for in the sales model.
For a cloud solution to gain substantial traction, the solutions available need to be comparable to those which are available in the legacy on-premise solutions. These solutions are made up of both the products from the vendor as well as complimentary products from their ISV partners.
If the ISV products are not made available in the cloud offering, it is likely that the customer will be unable to construct a solution to meet his requirements and thereby the vendor would risk losing the client and will not be able to convert existing customers to their cloud offering.
To achieve this, the vendor must provide the tools necessary to help the ISV integrate and deploy their products together with providing the relevant ecommerce solutions to promote, sell, invoice and collect payment for the ISV products.
While the vendor website in the past was adequate being an information delivery tool, moving to cloud products creates the demand for the website to now also provide ecommerce capability for the consumption and management of the products and ecosystem.
These ecommerce solutions are not the typical B2B or B2C type web-store solutions as they need functionality that will provide a solution to functions such as subscription billing, system provisioning, license management, multi-party transaction splits (e.g. commissions for channel partners), multiple sales channels, multiple deployment methods and more.
The ecommerce solution would also need to provide the ability to list and sell both the vendor core products as well as the ISV complimentary products to afford the customer the ability to build their perfect solution … much like an advanced AppStore.
At the same time, the cloud introduces an environment which puts distance between the customer and the traditional channel however the services provided by the channel are essential to the successful implementation of solutions for the vendor’s customers and unless the channel is engaged, the vendor will need to set up their own service resources which at the end of the day is very likely to set off any benefit derived from offering cloud products.
So while the topics covered here are not exhaustive, they illustrate the issues that need to be considered in conjunction with any cloud product strategy.
© Saxum Commerce
So you are a small or medium sized software vendor and with tough competition out there you need to be perceived to be bigger and better to close more deals.
Well if ever there was a reason to embrace the web trend for SMB software, this is definitely one of them.
© Saxum Commerce
To achieve this, software vendors need an integrated ecommerce, marketplace and operational platform that would provide the relevant functionality to:
© Saxum Commerce
Yosemite, Mountain Lions and Software Vendors I recently visited Yosemite National Park and was at awe with the immensity and beauty of it all. It was also a touch daunting at the thought of how big it seemed and how small I felt against it.
I then came across an article in the Yosemite Guide publication, which got me thinking (please read the article “What should you do if you meet a mountain lion?” attached) … In our insignificant world of enterprise software we have our behemoths like SAP, Oracle, Microsoft and IBM. They are all-powerful and will be around forever, taking control of the world below them. You just have to look at the struggling HP to see how these entities can survive massive disruption.
These organizations could be seen as the Mountains of Yosemite.
However, our world of business software has Mountain Lions who can hunt and by being agile, smart and hungry can find a space where they can flourish and build great success. By embracing change and in many cases creating disruption of their own, they carve out of the rock a sector that they can own and grow. Some great examples of this would be Salesforce.com, Box, Xero, Atlassian and Splunk.
Then there are the small un-funded software businesses with great people and ideas but are still finding their way. These businesses can be successful by following in the footsteps of other startups and by transitioning from the “hunted” to being a Mountain Lion. These small businesses need to do everything they can to be perceived as being stronger than they are. The web has delivered to them the best opportunity ever to “fight back” and to be seen as a relevant entity.
By using the ecommerce (subscription billing, marketplaces, portals), social marketing (LinkedIn, Twitter, Blogs) and web hype (“if it is on the web it must be true”), any business can create a presence and attract new opportunities. Just look at the explosion of subscription and mobile solution demand and it is easy to see how a small software vendor can take advantage of a disruptive environment.
Besides creating great products, smaller software vendors can use technology to grow their own businesses and should be actively embracing those web tools that can help them achieve it.
Of course many of these ideas will still fail because not every idea can be a winner and because not everyone can effectively execute but even those that fail can still have their moment of fame through the web.
From a different perspective, for this exact reason and from the consumer perspective, they have to be careful how they select their “web” suppliers … but that is a different topic.
© Saxum Commerce
While the family argues persistently about having hard or soft tacos, in the final scene of the advert for “El Paso! Tacos” the little girl shrugs her shoulders and says … “Why don’t we have both?”
(See the video below)
The point is: not all choices are mutually exclusive; not everything is a zero-sum game. That’s a fact that we here at Saxum find ourselves pointing out to the many businesses that find themselves embarking for the first time on some recurring revenue offering. “How do we manage and price our service or product? Should I offer an all-you-can-eat, or would a first-one-free model serve me better?”
Put differently, it would appear that the choice between a subscription model and a consumption model is mutually exclusive. And the reality is that one certainly can choose a single option but we would always suggest you offer both and give your customer choices (not too many though as that can be counter productive).
Why? The first reason is that the subscription and the usage/consumption models can and do “feed” off of one another. Any subscription will be consuming something, so it would be a natural option to have both fixed and consumption plans.
By example, what if my marketing team informs me that they will get more traction if they can offer a lower monthly commitment plan with overage costs to complement my existing single-fee-focused product catalog?
The second reason is that uptake is always greater when the customer is offered choices and where they feel that they have control over the way they engage and the costs they are likely to incur.
I am sure I would not be alone in suggesting that the mobile phone plans always leave you not really knowing what you are getting and this leads to 53% of all customer dissatisfaction. So while offering choice, be sure to keep your plans clear and easy to understand so that the customer knows what they are getting and to prevent customer churn.
Saxum Commerce prides itself on both understanding the subscription economy and also on providing a powerful and flexible platform to take advantage of it.
© Saxum Commerce
In this post, we look at some of the challenges being faced and solutions to them.
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”
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 …
… resulting in easily managed transactions giving both vendors and channel visibility of and control over their mutual customers.
© Saxum Commerce