Consumption Economics

B. Wood J., Todd Hewlin, Thomas Lah

Description

If you're a tech company, the most dramatic effect of megatrends like cloud computing, managed services, and the rise of consumer technology won't be felt in your company's product line. The true disruption will be to your business model. Future customers won't want to pay you high prices out of big "CapEx" budgets anymore. They will expect lower "cloud" prices paid from "OpEx" budgets only when and if they successfully consume the business value of your products. How your company reacts to this risk shift could either accelerate the commoditization of your products or lead you to a new stage of profitable growth. For the first time, the tools are on the table to truly eliminate barriers of cost and complexity created by the last generation of tech. Consumption Economics is the owner's manual for tech company executives who want to drive their company successfully into the next one.

Sujets

• Informatique
• Computer programming

Informations

• Publié par: Point B Inc
• Date de parution: 01 novembre 2011
• Nombre de lectures: 1
• EAN13: 9780984213054
• Langue: English

Extrait

Consumption Economics
The New Rules of Tech
J.B.Wood Todd Hewlin Thomas Lah
Copyright © 2011
ISBN: 978-0-9842130-3-0
LCCN: 2011917022
All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by information storage and retrieval systems, without the written permission of the publisher, except by a reviewer who may quote brief passages in a review. Printed in the United States of America.
Table of Contents Foreword Chapter 1 How Good We Had It: The Money-Making Machine Known as High-Tech Chapter 2 Shifting Clouds and Changing Rules Chapter 3 Looking Over the Margin Wall Chapter 4 Learning to Love Micro-Transactions Chapter 5 The Data Piling Up in the Corner Chapter 6 Consumption Development: The Art and Science of Intelligent Listening Chapter 7 Consumption Marketing: Micro-Marketing and Micro-Buzz Chapter 8 Consumption Sales: After a Great Run, the Classic Model Gets an Overhaul Chapter 9 Consumption Services: Will They Someday Own “The Number”? Chapter 10 Customer Demand vs. Capital Markets: How Fast Should You Transform? Chapter 11 The “S” Stands for Services Endnotes Index
Foreword
By Geoffrey Moore
Author of Crossing the Chasm, Inside the Tornado, Dealing with Darwin, and Escape Velocity
A S BUSINESS CATEGORIES EVOLVE AND MATURE, THEY TEND TO bifurcate into two business architectures: one specializing in complex systems, the other in volume operations. Prior to this split, only the complex systems model thrives, focusing on institutional customers, syndicating responsibility for the system across an ecosystem of vendors, partners, and the customers themselves. Because of the cost and complexity of these demands, there is no place for consumers or small businesses in this model, and even midsize businesses can find themselves challenged.
This has been the case for enterprise-class IT systems throughout the course of my life. But as J.B.,Todd, and Thomas make clear in this book, it will no longer be the case going forward. The rise of the volume operations IT model, initially confined to simplified consumer transactions, has now breached the levees protecting the complex systems enclaves. Riding a wave of “ ——— as a service” business models that stretch from infrastructure as a service to software to platforms to business processes, the volume model is reengineering the landscape—and the profit pools—of enterprise IT worldwide.
Now let me be clear. It is not that the complexity of enterprise IT has gone away. Indeed, if anything, it has increased. But as this book shows, responsibility for managing this complexity is shifting from the customer to the vendor. This has huge implications for vendors, for IT organizations inside the enterprise, and for the business itself in terms of leveraging IT, be it for differentiation, expansion, or productivity.
On the vendor side, the shift from a system to a service orientation fundamentally reshapes the economics of the IT sector, migrating zones of profitability to new roles and new players. Systems vendors, long accustomed to being top dog, now find themselves herded into utility computing platforms that disintermediate their relationships with the end customers. Conversely, customer service teams, traditionally marginalized as cost centers, now have taken center stage as their transactions have become the core of the next-generation offer set.
This direct interaction between the system and the end user enables next-generation IT vendors, in turn, to disintermediate the IT organization, at least in its traditional role as gatekeeper. This is not to say that enterprises no longer need an IT function, but to keep up with the times, IT must shift its focus from building and maintaining systems to shaping the interface between managed services providers and the business processes of their enterprise. The impact of staffing should not be underestimated, as the skill sets required to support the new model are quite different from ones used in the old model.
Finally, as vendors and IT organizations are responding to this massively disruptive turn of events, business executives and department managers also must come to the table with a new mindset. “IT as a service” dramatically lowers the barrier to entry for every enterprise. If yours does not take advantage of this new freedom, you will find yourself falling behind your competitors who do. Never has it been easier to gain a return from IT spending, and it is critical that organizations leverage this newly released cornucopia of capabilities smartly in order to keep current with an increasingly challenging global economy.
But how do you actually do that? How do vendors and IT organizations and business teams co-evolve to capitalize on this dramatic change? That is the focus of this book. Its authors have worked at the epicenter of this disruption throughout the past decade, and I can think of no one more qualified to frame the new agenda.
So buckle up, for it is bound to be a bumpy ride, and learn from these pros how to negotiate the hairpin turns in your future.
Geoffrey Moore
1 How Good We Had It: The Money-Making Machine Known as High-Tech
I N SECTOR AFTER SECTOR, THE PROFITABILITY OF SELLING TECH products is shrinking. The total amount of gross profit dollars in some tech product sectors is getting smaller every year. For the first time, most companies no longer seem able to innovate their way around the problem. Price competition is taking a huge toll on product margins not just in consumer sectors like PCs, but also in traditionally profitable enterprise segments like networking and software. It’s not because tech companies can’t innovate anymore, but because tech customers can barely use the complex technology they already own. They have unused features and licenses, excess capacity, and stable systems that serve their basic needs, so why buy more unless it’s cheaper? This is not the path to profitable growth. It is the path to commoditization, and it is forcing companies to change what business they’re in just to maintain margins. Hardware companies are jumping to services and software. Software companies are making their profits off of maintenance contracts, not selling software.
As an industry, we face a growing gap between what our products are capable of doing and what our customers actually do with them. This may be the true gating factor in the growth of tech industry profits and it’s not a problem that more features will cure. Failure to close this gap means future revenue growth that is anemic, unprofitable, or both. In the new economics of the cloud, driving usage is even more critical since nearly all the revenue will be based on consumption, and switching costs will be low for disgruntled customers. The cloud as it is currently envisioned is a tricky thing. On the one hand, it could be the rapid draining of the profit pool for high-tech—a relentless drive for cheaper and cheaper versions of standard functionality. At the Technology Services Industry Association (TSIA), we believe it could also enable a unique ability to fight commoditization. This is what this book is about. However, before we can look to the future, we need to take a look at how we got where we are today.
Technology purchase decisions have always been based on an assessment of risk and reward. If the reward was truly compelling, customers would take the risks—pay a high asking price, pay it all up front, put up with lots of frustrations, lots of complexity, even risk failure. Why would a buyer enter into such a lopsided agreement? It’s simple: Tech offers were that compelling. Not just compelling, but Wow! -compelling. After all, Wow! -compelling offers are what high-tech companies specialize in. It’s what VCs look for, what boards of directors and financial analysts reward, what R&D folks live for, and what salespeople want to sell.
For decades our offers have compelled corporations to buy complex and sophisticated hardware, software, networks, and services. While the investment risks to the buyers were significant, they gladly placed their bets because of the huge opportunity for value creation. Successful IT systems promised to dramatically increase revenues, cut costs, create competitive advantage, improve customer service, or boost employee productivity. These were rewards worth taking real risk for, even if it meant that the customer shoulders far more of it than the tech seller does.
As a consumer we experience the same phenomenon. We make trade-offs too. Hundreds of dollars and lots of personal time are required to realize the potential reward of some compelling technology offer. But instead of improving corporate profits, we just want to edit digital photographs or to entertain ourselves with awesome music and games. So no matter if you are a CIO spending $5 million on CRM or a mom spending $500 on little Bobby’s new laptop, almost everyone has stared down the barrel of the technology risk/reward decision. In either case, as long as the tech company could innovate in dramatic fashion, they got the customer to pay handsomely up front and assume the risk.
So how has this worked out? Pretty darn well for the tech companies. There has been so much breakthrough opportunity that the right product could catapult itself, its company, and its users to stardom. If you were the tech company with a hot product, you were golden. As a technology company, your goal was to join the famous parade of multibillion-dollar product franchises like Cisco routers, Microsoft Windows, Oracle databases, HP printers, VMware virtualization software, and the Apple iPhone. The list of highly profitable hardware and software products is long and impressive. Each deserves its place. These products created revolutionary opportunities for customer value. Even though the hot product rarely delivered on all cylinders, it usual