2. Preface: Geoffrey Moore
As business categories mature, they split in two:
One for complex systems
One for volume operations
!2
3. Preface: Geoffrey Moore
As business categories mature, they bifurcate:
One for complex systems
One for volume operations
!
Before that, only the complex system existed, shutting
out consumers and small businesses (think mainframe
computers)
!
The rise of _____-as-a-Service business models
signal a fundamental shift in markets – to the volume
operations IT model
!3
4. Preface (con’t)
Role of Information Technology is to provide one or
more functions for a business:
Differentiation
Expansion (growth)
Productivity (efficiency)
!
The complexity of enterprise IT exists – but
responsibility for managing the complexity is shifting
from the customer to the supplier
!4
5. Preface (con’t)
Implications are profound
System vendors are commoditized and disintermediated
Service suppliers become the central interface to
customers
The IT function inside an enterprise becomes a service
broker rather than a technology operator
Barrier to entry for new applications (i.e. “services”)
drops to near zero
!5
10. What Vendors Get Paid For
!10
Development costs
Hardware, third-party software, and licenses
Marketing
Sales salaries and commissions
Pre-sales consulting
Service and support
Training
11. Model is Ingrained
Vendors organize
around it
Customers buy this
way
Investors value
companies this way
!11
12. How Are Benefits Realized?
Product must work
People must be
trained to use it
Workflows must be
designed around
new product
All this before any
benefit is gained!
Who is responsible
for making this
happen?
The customer!
!12
13. This creates conflicting interests
!13
Financial
Gain
Length of Product Ownership
The CapEx Model for IT Infrastructure
Economic value
to the customer
Economic value
to the vendor
14. Observations
The average effective usage rate of enterprise software is only
54 percent.
Only 14 percent of enterprise software deployments are rated as
“very successful” by the IT execs who own them.
Of the nearly $14 billion in consumer electronics that were
returned by customers to retailers in the U.S. during 2008, only
five percent were actually broken.
!14
15. Impact on Vendors
Software upgrade rates are slowing
Percent of features in use are declining
Product sales cycles are lengthening
Customers struggle to digest all the product features
they already own
!
Bottom line:
Technology refresh rates in many product
categories are slowing as “good-enough IT” is
becoming a reality
!15
16. More Problems for Customers
High implementation costs (sometimes five times or
more than the product cost!)
Lack of interoperability
Extraordinary complexity
Frustrated business leaders
High cost of ownership
High switching costs
Poor end-user adoption
Hard-to-measure business benefits
!16
17. But…
…it worked (for vendors)
!
…customers were increasingly unhappy and looking
for something to change: “A steady, growing pile of
customer frustration – dead wood waiting for a
match”
!17
The “match” came via
three things over 15
months in 2007-8.
19. Impact of Thing One
Short-term
Brilliant and brutal execution of major cost reductions
!
Long-term
Customers do more with less
They demand that vendors put more “skin in the game”
because they no longer had the staff (or desire) to
manage all that complexity
!
Which led to Four New Thoughts about IT
!19
20. Four New Thoughts
1. Lower costs = lower complexity
2. There is such a thing as “good enough” technology
3. Customers don’t want to take all the risks
They don’t want to pay up front anymore
They want to pay ONLY when they capture
business value
4. Suppliers need to provide staff to customers
Bottom Line:
A new tech economic model
!20
22. Impact of Thing Two
Technology benefits can be delivered when needed,
and paid for as consumed
Reliable
High-performance
Inexpensive
!
Essentially, a utility model emerged in place of a
product model
!22
24. Impact of Thing Three
Control moved out of exclusive domain of IT
!
Apps let you “build your own phone”
They called it the iPhone, not the IT-Phone!
!
!
Led to the “consumerization of IT”
!24
28. “No big, fat circle called the product sale.”
!28
29. The Effect of the Risk Switch
!29
Financial
Gain
Length of Product Ownership
Aligned interests
Economic value
to the customer
Economic value
to the vendor
30. Microtransactions
• New users
• Added features
• Content downloads
• More modules
• Extra computing capacity
• More storage
• More, more, more!
!30
32. The Cloud Completely Shifts Risk
Old sales saying: “The most expensive place to finish
is second.”
All the cost, none of the revenue
!
New saying: “Most expensive place to finish could be
first.”
If customers fail to adopt your consumption model, you
make no money.
!
!
Bottom Line: Front end costs are now on
supplier’s balance sheet.
!32
33. !
How do we develop and sell products
optimized for this
sales consumption model?
!33
34. Overview: Seven Major Shifts
1. The risk in the purchase decision will shift from the
customer toward the supplier.
2. Complexity’s long and illustrious reign will end.
Simplicity will be king.
!34
35. Shift #2
“Customers are rapidly losing their awe of complexity.
Simplicity is becoming the new hallmark of sophistication.”
OR
!35
36. Impact: Cloud Reduces Complexity
Huge, upfront capital outlays vanish
Step functions of capability is out; variable +/- is in
Overall IT costs are coming down
Commoditization; standards; “software-defined”; open
Vendor differentiation becomes minimal
“Some assembly required” by customer disappears
Disruptive refresh/upgrade cycle disappears
!36
37. Commoditization
Definition: A commodity is some good for which
there is demand, but which is supplied without
qualitative differentiation across a market.
!
“Tech is not immune to commoditization – it is just
harder to spot. The phenomenon occurs when one
product becomes close enough to its competition that
customers start to buy on price alone.”
!37
38. !
How do we deliver products
solutions optimized for this
sales consumption model?
!38
39. Overview: Seven Major Shifts
1. The risk in the purchase decision will shift from the
customer toward the supplier.
2. Complexity’s long and illustrious reign will end.
Simplicity will be king.
3. Cloud customer aggregators will shrink the direct
market for tech infrastructure providers.
!39
41. Old Way
VENDORS BUYERS
1,000’s 1,000’s
▪ Ratio of tech platforms to customer organizations
was ~1:1
!
▪ No two customers ever shared same stack
!
▪ Every customer made independent decisions at
every layer
Direct relationships
+ channels
!41
43. New Way
VENDORS BUYERS
? 1,000,000’s
Cloud
SPs
Dozens
▪ IaaS suppliers insert themselves between suppliers
and their customers
▪ Opposite of what Dell did in PCs – this is intermediation at
scale
▪ Big IaaS providers will enjoy economies of scale,
leaving only niche markets for small IaaS suppliers
!43
45. Impact
Selling to large IaaS providers will be unpleasant
They are very sophisticated
They have leverage
They are also your competitors with end users
(They may choose to build IT themselves, too.)
!
This will drive prices and profits down, and minimize
differentiation by suppliers
!45
46. !
How do we deliver products
solutions optimized for this
sales consumption
distribution model?
!46
47. Overview: Seven Major Shifts
1. The risk in the purchase decision will shift from the
customer toward the supplier.
2. Complexity’s long and illustrious reign will end.
Simplicity will be king.
3. Cloud customer aggregators will shrink the direct
market for tech infrastructure providers.
4. Big changes will come to the channel ecosystem.
!47
48. Shift #4
Upending the channel ecosystem
Today
!48
Reseller
Category
Customer’s
Product
Business
Customer’s
Service
Business
Reseller’s
Primary
Incentive
Reseller’s
Service Skills
Reseller’s
Business
Expertise
GSI Desirable for
tech
company to
go direct
Desirable for
tech
company to
go direct
Professional
service
revenue
Sophisticated
global multi-
vendor
High
VAR/Dealer Undesirable
for tech
company to
go direct
Undesirable
for tech
company to
go direct
Product and
maintenance
revenue
Basic, local Low
Global Systems Integrator vs. VARs/Dealers
49. Changes in the Channel
Cloud marketed directly to customers large and small !
massive channel conflict
Cloud services don’t require what channel provides
Vertical market focus and business process expertise
become the new high-value offerings
IT departments lose control of end user data to
suppliers
Biggest impact is disintermediation of SMB-facing
VARs
!49
50. Impact
With cloud offerings, tech companies can sell directly
to SMB customers
Channel needs to shift to solving business problems,
not technology problems
“The one thing [SMB customers] can’t get in the
cloud is the attention of a consultant who can
diagnose and solve a business problem.”
This is not their strength
!50
51. Overview: Seven Major Shifts
1. The risk in the purchase decision will shift from the
customer toward the supplier.
2. Complexity’s long and illustrious reign will end.
Simplicity will be king.
3. Cloud customer aggregators will shrink the direct
market for tech infrastructure providers.
4. Big changes will come to the channel ecosystem.
5. Cheaper enterprise software will emerge.
!51
57. Overview: Seven Major Shifts
1. The risk in the purchase decision will shift from the
customer toward the supplier.
2. Complexity’s long and illustrious reign will end.
Simplicity will be king.
3. Cloud customer aggregators will shrink the direct
market for tech infrastructure providers.
4. Big changes will come to the channel ecosystem.
5. Cheaper enterprise software will emerge.
6. IT departments will “get out of the way” of end users.
!57
58. Shift #6
IT departments “get out of the way” of end users
Centralized buying ! individual buying
“Pick your PC”
End users drive microtransactions
!58
60. Overview: Seven Major Shifts
1. The risk in the purchase decision will shift from the
customer toward the supplier.
2. Complexity’s long and illustrious reign will end.
Simplicity will be king.
3. Cloud customer aggregators will shrink the direct
market for tech infrastructure providers.
4. Big changes will come to the channel ecosystem.
5. Cheaper enterprise software will emerge.
6. IT departments will “get out of the way” of end users.
7. Tech companies will capitalize on user-level
behavioral data.
!60
61. Shift #7
Capitalize on user-level behavioral data
!
In a consumption model, the end-user and the tech
company are connected in real time
Usage is actively collected, monitored, and mined
!
!
Monitor it, measure it, monetize it.
!61
62. The New Normal
!62
What’s in Trouble What’s in Vogue
Complex technology Simple
Asset purchases Pay for results
Install, integrate, upgrade Business value
Maintenance costs Turn on, turn off vendors
Hard-to-use software Higher volumes
Central IT control End-user preference
63. Revisit Commoditization
Definition: A commodity is some good for which
there is demand, but which is supplied without
qualitative differentiation across a market.
!
“Tech is not immune to commoditization – it is just
harder to spot. The phenomenon occurs when one
product becomes close enough to its competition
that customers start to buy on price alone.”
!63
65. The Margin Wall
!65
Price of
Technology
Cost
Structure
Use of
Technology
The Margin Wall
▪ Examples:
▪ PC
▪ Cell phones
▪ Printers
!
▪ When will this model
apply to:
▪ Enterprise SW?
▪ IT Infrastructure?
66. So We Use “The Product Playbook”!
▪ High switching costs
keep customers in
the fold…
▪ …but breed
resentment
!
▪ Cloud dramatically
lowers switching
costs
Masters of
Complexity
!66
Price of
Technology
Use of
Technology
A New Product!
67. Typical Reaction to Challenge
Good in principle…”but you can’t cut your way to greatness.”
!67
Price of
Technology
Cost
Structure
Use of
Technology
New Product
68. Existential Situation
Problem: No usage, no $
!
Solution: Make sure our product gets used
!68
Masters of
Complexity
Masters of
Consumption
69. The Consumption Model
“The next generation of profitable growth in tech is about
growing end-user consumption and profitably selling
micro-transactions to enterprise consumers.”
Masters of
Consumption
!69
Price of
Technology
Use of
Technology
Create
Consumption
Capabilities
70. A question
!70
Masters of
Consumption
Price of
Technology
Use of
Technology
Masters of
Complexity
What do your customers want you to be today?
Market Maturity
The Margin Wall
71. Market Maturity Spectrum
!71
Masters of
Consumption
Price of
Technology
Use of
Technology
Masters of
Complexity
Market maturity drives demand for a consumption model.
The Margin Wall
Collaboration Mobility
Enterprise
Apps
Networking Infrastructure Desktop
Office
Automation
72. Apple Does Both
!72
Masters of
Consumption
Price of
Technology
Use of
Technology
Masters of
Complexity
The Margin Wall
Collaboration Mobility
Enterprise
Apps
Mobile
Phones
Infrastructure Desktop
Office
Automation
73. iTunes would be #130 on the F500
!73
http://www.asymco.com/2014/02/10/fortune-130/
74. Learn to Love Micro-transactions
Needed: A high volume of micro-transactions
Per app
Per user per month
Per feature level
Per print or per document
Per GB data stored
Per hour of resource used
Per purchase
Per data service subscribed
Per content downloaded
Tens of dollars per transaction…NOT tens of thousands of dollars
!74
75. New Pricing Models
“Per User, Per Month” is just the first, simple foray
!
Imagine this:
$ = ((
Per user
per month
fee
) x (
Number
of
modules
) +
Premium
feature
level
charges
+ (
Number of
monthly
content
subscriptions
x
Price per
subscription +
Individual
content
download
fees
)
Consumption Driving Opportunities
!75
76. The Entire Value Chain is Affected
[See note to slide.]
!76
End User Pulling Consumption Economics
Intel
Flextronics
EMC
Zynga
Farmville
Facebook
Amazon
Web
Services
Consumption
Economics Model
Fixed Price
Model
How far above the
cloud will the line go?
77. But Things Could Be Worse
[See note to slide.]
!77
End User Pulling Consumption Economics
Intel
Flextronics
WD
Zynga
Farmville
Facebook
Amazon
Web
Services
Consumption
Economics Model
Fixed Price
Model
81. Why MRD’s are “boat anchors”
Customers don’t wait
Competitors don’t stand still
First Customer Ship (FCS) is just the start
Comprehensive list of “requirements”
!
!
Result: Massive feature overshoot (and often late)
!81
83. Why we get feature overshoot
Customers ask for it
!
To trump the competition (The most features at the
lowest price wins, right?)
!
Because we can do something, we do it
Source: Don Norman, “The Design of Everyday Things”
!83
87. The Big Picture
!87
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
88. What Product Management Owns
!88
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
89. What Development Owns
!89
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
90. The new development model
(aka “Lean” and “Agile”)
!90
Feature Available Users Use
In-Product
Upsell
Consumption
Innovation
Intelligent
Listening
New Feature
Units DevelopedRapid Cycle Time
91. Intelligent Listening vs. MRD
MRD
– Anticipate every need
2-3 years away
– Customer surveys
– Focus groups
– Advisory councils
Intelligent Listening
– Based on actual usage
– Need to fully instrument
our systems
– What gets used?
– What else gets used?
– In what sequence?
– What doesn’t get used?
– Are there linkages?
– Can we drive usage?
!91
95. The Big Picture
!95
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
96. What Marketing Owns
!96
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
97. The new marketing model
!97
Feature Available Users Use
In-Product
Upsell
Consumption
Innovation
Intelligent
Listening
Customer usage priorities
Product management priorities
Customer Service Learning
Usage data analysis
Rapid Cycle Time
Consumption
Roadmap
Offer
Development
Targeting
Strategy
98. What Sales Owns
!98
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
100. M
ore
U
sers
per M
onth
Three Critical Sales Tasks
!100
More Apps per User
MoreFeaturesperUser
User #1
App #1
#1: Win the platform sale
#2: Sell the pay-for-
consumption model
to the IT and procurement
departments
#3: Expand the platform agreement
and consumption volumes by arming
Sales with consumption research
102. Implications for Sales
!102
What’s Hot? What’s Not?
The Business Buyer The IT Buyer
Selling into OpEx Budgets Selling into CapEx Budgets
Business Expertise Technical Expertise
Vertical Territories Geographic Territories
Selling Results Selling Features
Outcome-Based Contracts Fixed-Price Contracts
Business Process Slides Demoing Features
Your Consumption Model and
Service Capability
Your Complexity and Underlying
Architecture
“Apps Market” Maintenance Contracts
Social Media Knowledge Social Graces
106. The Big Picture
!106
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
107. What Professional Services Owns
!107
Customer
Consumption
of Value
Time
People-based
Consumption
Activities
Product-enabled
Consumption Activities
Best
Consumption
Practices
Product Teams
Service Teams
Usage
Data
Desired
Consumption
Practices
Customer Priorities
End-user Priorities
Customer
Input
Consumption
Roadmap
Offers
108. Sample Temporary Measures: Planning
!108
• Business
objectives
• Segmentation
model
• Competitive
analysis
• Consumption
model
development
• Change
management plan
• Implement
temporary
measures
• CRR economics
• Customer
migration
• New customer
adoption
• Investment and
revenue
projections
109. Sample Temporary Measures: Planning
!109
• Business
objectives
• Segmentation
model
• Competitive
analysis
• Consumption
model
development
• Change
management plan
• Implement
temporary
measures
• CRR economics
• Customer
migration
• New customer
adoption
• Investment and
revenue
projections
110. Summary
Radical changes in customer behavior and
expectations of technology underway
Move to utility: “Microtransactions” and risk-sharing
Aligns vendor interests with customer interests
!110