b4b: where tech is headed
TRANSCRIPT
B4B: Where Tech Is Headed
J.B. Wood CEO TSIA Lead Author: B4B ISG September 2014
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2009 2011 2013
“We Have a Problem…” “A New Purchasing Model Is Coming”
“Industry Transformation”
Risk Shifts to The Vendor 1
3
Simplicity Will Be King 2 Users Drive Tech Decisions 3
Customer Aggregators Shrink Direct Market 4
Channel Value Reset 5 Tech Pricing Under Pressure 6
Usage Data Leverage Becomes Key 7
© TCG Advisors and TSIA
The New Rules of Tech (circa 2010)
Services Will Own the Customer 8
Industry Trends Impacting Tech Supplier Business Models
Revenue of Large Cap Tech Companies Are Declining
5
2008 Q4, $248B 2011 Q4, $242B
$206B
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2008 2009 2010 2011 2012 2013 2014
-$7B Q4 to Q1
- $36B or 15%
- $140B/Yr
SOURCE: TSIA Service 50 Index
What Is Happening to IT Suppliers?
6
Software Eating Hardware.
Cloud Eating On-Prem.
Services Eating Products.
Business Buyers Eating IT Budget.
Sell Complex Products To the IT Department
Sell Outcome Services To the Business Users
Complexity
Price Per Unit
Service vs. Product Spending
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$0 $20,000 $40,000 $60,000 $80,000
$100,000 $120,000 $140,000 $160,000 $180,000
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2008 2009 2010 2011 2012 2013 2014
Total Service & Product Revenues
Sum of Product Revenue Sum of Service Revenue
What Is Happening to Service Providers?
8
Software Eating Labor.
Cloud Eating On-Prem.
Point Products Battling Solutions.
Who’s Budget? IT or Business?
Sell Services To Business Buyers
Sell Outcome Services To the Business Users
Complexity
Price Per Unit
Market Forces in Play
9
Profitable Legacy Model ?
Commoditized Legacy Model XaaS 1.0
Supplier Scenarios
Demand for New Consumption Models
Prof
itabi
lity
of
Cor
e O
fferin
g
No One Wants Either Scenario
10
Profitable Legacy Model ?
Commoditized Legacy Model XaaS 1.0
Supplier Scenarios
Demand for New Consumption Models
Prof
itabi
lity
of
Cor
e O
fferin
g
X X
Everyone Seeking
B4B Frameworks and How Tech Suppliers Are Aligning to Transform
The Great Divide
Product Focused
Outcome Focused
CUSTOMERS SUPPLIERS
Much of Future Supplier Growth and Differentiation Will Be
Determined In This White Space
12
Basic Offer: Complex Offer: Optimize Offer: Outcome Offer:
B4B Operating Model Construct
Optimal ROI Ease Best Product,
Fair Price Fast and Sure
Availability
Standard, Reliable Product
Implementation and Maintenance
Services
Tailored Product
Adoption Services
Connected Product
+ +
LEVEL 1 SUPPLIER
LEVEL 2 SUPPLIER
LEVEL 3 SUPPLIER
LEVEL 4 SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Operate (Managed) Services
Customer Value Power +
Outcome as-a-
Service
Supplier Offer Power
13
LEVEL 1 AND LEVEL 2 SUPPLIERS B4B:
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“B2B was an age where a manufacturer sold products TO a business customer.”
What Do Manufacturers Like To Do?
• Make. • Sell. • Ship.
15
Basic Offer:
Level 1 Works Great For Basic Products
Best Product, Fair Price
Standard, Reliable Product
LEVEL 1 SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Customer Value Power
Supplier Offer Power
Make. Sell. Ship.
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It’s Easy!
IT Department Role To Own and Operate
Basic Offer:
Level 1 Supplier: The Financial Model Was Well Understood
LEVEL 1 SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused Rev
Mix
PRODUCT OTHER
Cost Structure
Target Profit
% COGS
% COM
% COS % G&A
% EBIT
Make. Sell. Ship.
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Out of Level 1 Grew A Critical, Tacit Agreement
Supplier Model: OUTCOME PROVIDER
Customer Responsible Zone Supplier
Responsible Zone
Asset Works Asset Operational Optimized ROI Competitive Differentiation
Customer Value Objectives (meet needs of different buyer types)
Make. Sell. Ship. Own. Operate. Get Outcome.
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Once Software Or Systems Get Involved, Customers Need Help to Get and Keep the Product Operational
19
Complex Offers Require a Level 2 Supplier
20
Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1
SUPPLIER LEVEL 2
SUPPLIER LEVEL 3
SUPPLIER LEVEL 4
SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Great Product
Great Product
Product Attached Services
IT Department Role To Own and Operate
I Need a Bit of Help!
Make. Sell. Ship.
Service. +
Basic Offer:
Complex Offer:
Level 2 Supplier: Different Financial Model Was Even Better!
LEVEL 1 SUPPLIER
LEVEL 2 SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused Rev
Mix
% PRODUCT
% SERVICES
Cost Structure
Target Profit
% COGS % COM
% COSa
% G&A
% EBIT
% COSe
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Make. Sell. Ship.
Service. +
Basic Offer:
Complex Offer:
The Hard Line For Suppliers At Level 2
LEVEL 1 SUPPLIER
LEVEL 2 SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
STOP
Complexity. Friction.
Cost. Time.
= Not
Scalable
22
Make. Sell. Ship.
Service. +
But Now…This
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2008 Q4, $248B 2011 Q4, $242B
$206B
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1
2008 2009 2010 2011 2012 2013 2014
-$7B Q4 to Q1
- $36B or 15%
- $140B/Yr
SOURCE: TSIA Service 50 Index
LEVEL 3 AND LEVEL 4 SUPPLIERS B4B:
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“B4B is an age where a supplier achieves an outcome FOR a business customer.”
Level 3 and Level 4 Markets: OEMs And Partners Are Gearing Up To Play New Roles
25
Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1
SUPPLIER LEVEL 2
SUPPLIER LEVEL 3
SUPPLIER LEVEL 4
SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Great Product
Great Product
Product Attached Services
New Ways to Save Customers
Money and Improve Their
Business Outcomes
As Market Demand Shifts To Level 3: New Roles Formerly Done by IT or Not At All
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Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1
SUPPLIER LEVEL 2
SUPPLIER LEVEL 3
SUPPLIER LEVEL 4
SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Great Product
Great Product
Product Attached Services
Great Product
Product Attached Services
Operate and Adopt Services
As Market Demand Shifts To Level 4: Monetize Huge Volumes By Delivering Customer Outcomes Easily and With Low Risk
27
Basic Offer: Complex Offer: Optimize Offer: Outcome Offer: LEVEL 1
SUPPLIER LEVEL 2
SUPPLIER LEVEL 3
SUPPLIER LEVEL 4
SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Great Product
Great Product
Product Attached Services
Great Product
Product Attached Services
Operate and Adopt Services Extreme
Automation Platform
The Great Race is On
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Profitable Legacy Model B4B Company
(XaaS 2.0)
Commoditized Legacy Model XaaS 1.0
OEM Scenarios
Demand for New Consumption Models
Prof
itabi
lity
of
Cor
e O
fferin
g
Sales in the XaaS Model
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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
Land and Expand Large, Multi-Year Lock-In
The Business Buyer The IT Buyer What’s Hot? What’s Not?
Level 1 Suppliers Focused On:
• Make. • Sell. • Ship.
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Level 3 and 4 Suppliers Now Preparing To Talk About Customer Outcomes
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Outcome Based Service Portfolio Consumption KPIs Financials Type 1 Type 2 Type 3
Users Transactions
Terabytes Instances Features Minutes
# of Customers Units Produced
Employee Productivity Equipment Productivity
Customer Sat # of People
Efficiency KPIs Percent Compliance
Spend Per Customer Cost per Transaction Reduced Labor Cost New Offer Revenue
The Yin-Yang of Outcome Offers
Building a Product Offer: 1. Product: What can this product do? 2. Services : What services will the customer
need with this product? – Implementation, Training, Ongoing Support
3. Features and Benefits: Why should the customer buy these services from us?
– Expert staff that know the technology – Reduce implementation time and risk – Optimize uptime
Building an Outcome Offer: 1. Business Challenge: What is the
business challenge your customer is facing?
2. Outcome Metrics: How does the customer know they have solved the business challenge?
3. Capabilities: What are the capabilities required to meet the challenge and achieve the outcome?
4. Processes: What are specific processes need optimized to support the capability?
5. Performance Metrics: How will you measure progress toward the outcome?
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Product + Service Outcome Dependencies
What Does the “Shift Right” Mean to IT?
• Pivot toward the business users and new innovations • Trusted advisors to the business users, then trusted
sourcers (both among suppliers and vs. internal IT)
• Relegate more of “operate” and “adopt” to suppliers • Shift supplier evaluation criteria away from features and
toward their operating model capability • Hard choices about IT’s role and size
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RESULT OF THE GRAND BARGAINS:
Suppliers That Satisfy CIOs
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Low Cost and Variable Costs of Usage State-of-the-Art Security
Range of Purchase Models
Innovations That I Did Not See
Ability to Deliver Outcomes
Fast and Agile
On-Prem, Hybrid, Cloud Options
Flexible Data Constructs Technology Enabled
Mastery of Domain
What Changes? A Lot. A Calm, Rationale Approach to Transformation
27 Things That Level 3 & 4 Suppliers Must Re-visit
Offers
Markets
Partner
X Product
Land Sales
Financial Models
GTM …aaS Operations
Pricing
Value Prop Offer Type
Trial Mktg Processes
Org & Skills
User Exp
Dev Capab Connected Prod
SaaS 2.0
Revenue Mix Offer Margins
Land GTMs Expand GTMs Service GTMs
Ext Auto Plat Cust Success Expand Sales
Partner Eval
Partner Enabl Partner Mgmt
Target Buyer Segment Model
Comp. Analy
In Use Mktg Services
Quote-to-Cash
New Capabilities Must Be Added, Some Must Be Repurposed, Others Eliminated
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✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔
✔ ✔ ✔
CEO
R&D Manufacturing Sales Services Marketing
CFO
✔
The Technology
Industry
Products
Hardware and Software
Technology Services
Product Services
Technical Design
Implementation
Integration
Offsite Tech Support
Onsite Repair
Technical Training
Traditional Level 2 Supplier Product and Service Offers
L2 L1
The Technology
Industry
Products
Hardware and Software
Technology as a Service
Technology Services
Product Services
Technical Design
Implementation
Integration
Offsite Tech Support
Onsite Repair
Technical Training
Optimize Services
Operational Services*
System Monitoring
Hosting
Configuration Management
Multi-Vendor Management
Adoption Services
Adoption Planning
Process Consulting
Consumption Monitoring
Consumption Optimization
Information Services
Data Maintenance
Data Analytics
Data Supplementat
ion
Outcome as a Service
Outcome and Risk
Management Success Science
Success Reviews
Success Variables
Success Plays
Outcome Bundles*
Full Automation
*Also known as Managed Services
New B4B Services Are Coming From Tech Companies
L2 +L3 +L4 L1
A Changing Landscape
• Tech Companies Will Rapidly Migrate Toward Services • They Will Combine Technology (on-prem and off) and Services (on-
prem and off) • Pure Service and L3/4 Product Companies Will Compete • New Supplier Operating Models Are Still…New!
– What Are the New Financial Models? – What Are the New Capabilities? – Who Does What? – Direct AND Indirect Customers
• We Believe the Transformation Is Manageable – and Vital
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The New XaaS Normal
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What’s Out? • Complex technology • Asset purchases • Install, integrate, upgrade • Maintenance costs • Hard-to-use software • Central IT control
What’s In? • Simple • Pay for results • Business value • Turn on, turn off vendors • Higher volumes • End-user preference
Thank You! J.B. Wood CEO TSIA Lead Author: B4B ISG September 2014