Services, the future for Software?

In a nutshell, my 15 year career within ICT has been built on Professional Services and Managed Services. i.e my roles have always been within the Services unit of companies I’ve worked for, although those companies have largely been hardware technology vendors. Lately I’ve been looking closer into the impact that Professional Services and Managed Services could have on more software focused vendors within the ICT industry, and in particular desktop licensed-based software such as office applications, design software, accounting software, etc.

If I was to picture an ideal business model for such software vendors, and where Professional Services + Managed Services would support that business model, it would look something like this below.

Consumer

The bottom layer of the model represents the Consumer customer segment. This layer would consist of standardized cloud based software offerings/packages (SaaS) that would look and function the same for each customer. i.e no customization. Being SaaS based, they would be offered on a Pay As You Go/Use utility based consumption model, where customers only pay for what they use with no volume or duration commitments. The offerings would be quite low touch from a vendor perspective, with minimal customer support. Essentially it would be a self-service approach where customers would just click on a few links and provide their credit card number, giving them instant access to a standardized version of the vendor’s software running on a virtual machine somewhere in the cloud. In essence this is a Managed Service as the vendor is responsible for the on-going provision and management of the software offerings, the infrastructure it resides on, and all related life-cycle activities, offered to the customer for a known upfront fixed fee.

The customer benefit is they now have on-demand access to software that perhaps previously was too cost prohibitive as an outright license purchase, while also giving users the ability to trial various products.

The vendor benefit is that it simplifies sales and distribution by lowering entry barriers, while giving them access to a whole new market of customers, as they are now putting their products in the hands of potentially millions of people perhaps for the first time, who can now use those products on-demand for a nominal fee as and when they please.

Examples of existing SaaS based offerings in this context would be Microsoft Office 365 and Adobe Creative Cloud.

Additionally, some software companies like SAP are making available to customers standardized instances of their offerings on Amazon Web Services Marketplace. For these offerings, the revenue split would be that Amazon gets their cut for the cloud infrastructure they are providing (servers, storage, compute) for the vendor software to reside on, while the software vendor portion of the revenue would cover licensing costs, development, customer support, etc.

SMB

The middle layer of the model represents the SMB customer segment. In this layer, the software offerings would still be SaaS based, however depending on the individual SMB customer needs, they would require a level of customization of the standardized SaaS offerings available to the Consumer segment. To cover the costs incurred for such customization of the standardized software, SMB customers would need to subscribe to some form of volume or duration commitment. These higher touch, value added, customization services would be “outsourced” by the software vendor to their channel partners, both for sales and delivery, largely as they could perform the work at greater scale and lower cost than the vendor itself.

The customer benefit is that they have a customized version of the standard software tailored to their own business needs, however as they do not own the software this allows them to reduce their Total Cost of Ownership (TCO), doing away with the costs and effort associated with maintenance and upkeep of the software, version control, license renewal, customer support fees, etc, and removing all that burden from their books.

The vendor benefit is that they are servicing a key customer segment and providing tailored solutions to customers within that segment, without the need to have their own in-house resources consumed or involved with the sales and delivery of such offerings towards their customers.

Enterprise

The top layer of the model addresses the Enterprise segment. In this layer the software offerings would be on-premise desktop licensed, as opposed to cloud based SaaS. Customers would be large MNC’s, government or public sector entities, etc, requiring high touch, largely customized, bespoke solutions. Such bespoke customization would typically involve the software needing to comply with certain standards or regulations for particular markets. e.g building or transport regulations for construction or design software. It could also require customization to support certain language character sets, such as Chinese, Japanese, etc. The customers in the Enterprise segment would be engaged through a direct sales model rather than through channels, with dedicated vendor Key Account Managers or Client Account Directors having quota-carrying targets with full P&L responsibility for those assigned accounts. The customer would be billed on an agreed Statement of Work (SoW) capturing the scope of the solution. Within this Enterprise segment, a range of Professional Services could be offered:

  • Advisory Services: to work closely with the customer in defining and scoping the solution
  • Deployment; to deliver the sold solution, including the functions of Plan, Design, Implement
  • Project Management; to manage the consultants in service delivery to deploy the sold solution, where consultants in this software context refers to designers, developers, programmers
  • Technical/Customer Support; reactive based service where customers contact the vendor help desk to report a bug and the vendor engineers provide a solution in the form of a software patch or correction
  • Optimization;  proactive based service involving performance management, trend analysis, etc, that could detect bugs ahead of time and rectify them before any business impact was experienced

The customer benefit is that they are receiving a solution that is completely tailored to their business, developed with the most intimate level of engagement and support from the vendor, including the inherent access to best practice methodologies that the vendor has garnered over time from servicing it’s global customer base.

The vendor benefit is that they are able to charge a premium for the sale of their intellectual property, while obtaining real insights into how their software works and is utilized in large businesses, assisting in future development of their software, as well as seeing how it could be applied to other similar customers for possible repeatability.

So that’s a brief look at my take on how Professional Services and Managed Services could help software vendors to grow their business, where each ascending customer segment reflects an increase in value to the customer, the required customer commitment level, and the level of customization required for the software. Hopefully my views are somewhat in line with the (current or aspirational) business model of software vendors in the market today.

What do you think?

In this initial blog I’ve touched on a number of different areas that I have experience in: Cloud Computing, Managed Services, Channel Partners, Outsourcing, Professional Services. I’ll endeavor to cover these in more detail in future blogs.

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