The New ISV & The New Software Economy

The software industry is changing faster today than it ever has in the past. A combination of factors including globalisation, internet technologies and economics, open software ecosystems, rapid development techniques, application interdependence and reuse (such as SOA) and a fundemental change in the business models and value chain through SaaS, is changing forever how independent software vendors (ISVs) will operate.

So its time to redefine the term ISV. In the past, a software company would design, develop and market a software product independently – thus the term Independent Software Vendor. They operated using a very monolithic structure on the product development side of the business. This is a model similar to many other product manufacturing industries.

But, like those other industries, globalisation has already altered the way software products are built. Labour costs (originally) moved much of the software development to less expensive ‘offshore’ centres. Larger companies built software development centres in more cost efficient locations and hired teams of developers there. Smaller companies outsourced some or all of the development process to offshore (and near shore) specialists. Software development also focused increasingly on the upper layers and large elements of the total code base are now bought off the shelf from somebody else.

So on the production side of the software industry, the concept of an ‘independent’ software vendor is already changed or changing to an interdependent software vendor (myself and other guests on this recent Haut Tech Conversations show hereby claim creation rights to this new term!).

But if changes on the production side of the new model ISV are significant enough, they will be increasingly dwarfed by changes in the delivery side of the business. As has already been discussed on this blog here and here and on others, the impact of SaaS on the delivery side is more profound. This means that we will have to reconsider the newly coined term Interdependent Software Vendor even before the paint dries. SaaS is more about a service than a software product. So perhaps we can reuse the term ISV but as an Interdependent Services Vendor. Now what could that V become…

Naming conventions aside, the fact that such major changes are impacting both the production models and the delivery models (and, of course, the associated business models) mean we are heading into a Brave New World for the software industry. The implications are broadly recognised and are shaping not just the industry participants but government policies too. I attended a presentation this morning at Trinity College Dublin, where Jeniffer Condon, the head of Enterprise Ireland’s Software Division, Ireland’s government agency responsible for supporting and growing the country’s indigenous software sector, outlined a vision and strategy for the next four years that focuses heavily on the New Software Economy and SaaS in particular.

So I guess one of the key messages to take away from this is that today’s software vendors need to understand their new role, decide what they will do in-house and what can be better done by others and carefully build an ecosystem to surround them. As is all aspects of life, choose your partners very carefully – your business will depend upon it.

Steve

Services and SaaS Talk Show Podcast

I was delighted to be invited as this months guest speaker on the Haut Tech Conversations discussion show. The subject was the real meaning  and implications of Service in Software-as-a-Service (SaaS) business models. This is a very interesting subject as many software vendors considering or implementing a migration to SaaS often seem to misunderstand or underestimate the service element and their new role as a service provider.

The discussion included an excellent panel of industry experts such as Luis Aburto , CEO of Scio Consulting, Mikael Blaisdell of  Mikael Blaisdell & Associates, Lincoln Murphy, founder of Sixteen Ventures and a great host in  Michael Dunham, Scio’s principal consultant.

The conversation covered a broad range of issues relating to SaaS and services. The show was recorded and is available to listen to or download as an MP3 file here.

Steve

Pricing Services and SaaS – Part 1

One of the most important (and often most difficult) decisions a vendor must decide upon is the pricing structure for their service offerings. This is particularly the case for product organisations who are building out new service portfolios. As the software product business evolves towards a more service driven industry through SaaS, vendors need to get this part of their strategy right or face potential disaster.

Before exploring some of the important considerations of service pricing I want to point out that this post only examines the fundamentals of pricing services. It does not look at pricing strategies (such as discounting to grab market share) or the subscription pricing models used in SaaS – I will cover those specifics in part 2 of this post at a later date.

So how do you price a service? There are three standard models available:

Cost Plus Pricing

This is the most basic pricing model available and has been used widely as the basis for product pricing. To use this model you need to really understand your cost structure and for many companies new to services (or experienced service organisations developing new services) this can be an inexact science. Different industries use different ’standard’ percentages for cost plus pricing. Many take their minimum product margin, lets say 40%, and apply that to new services too. Unfortunately, most product organisations seem much less capable of estimating actual service provision costs (particularly at the new service launch stage) than they are for their products. Service revenue profitability therefore tends to be much more variable than product margins and many service initiatives fail to meet expectations within product oriented businesses because they don’t apply the same rigour and process in pricing a service than they do in pricing a product.

It need not be this way and with the correct methodologies and service development processes aligned to equally structured service delivery programmes this method can be effective. But, as a general strategy, cost plus pricing is not the most attractive route to pricing service offerings.

Market Based Pricing

Another common approach is to look at the existing market and see what your competition is charging for similar services. Although such competitive analysis is essential as it indicates what customers are already prepared to pay (or expect to pay) it should not be the primary driver in deciding upon service pricing for your own business. Unless your offering is identical to the competition and you really understand their business model and actual profitability then this can be a dangerous path to follow.

So in summary, you should conduct market research and competitive analyses as part of your pricing strategy but this should be one of a number of inputs rather than an overriding one.

Value Based Pricing

For non-commoditised service businesses, value based pricing is the preferred model. The key is understanding the value that the service brings to your customer and pricing it accordingly, rather than simply adding a percentage to your service delivery costs or following the lead of your competitors.

But understanding the real customer value of your service and expressing that value in a compelling manner to your customers can be challanging. It requires a level of insight into your customer’s business and ‘pain points’ that might not be available today. Capturing this insight and building and then pricing a compelling service around it is the key to sucess in any new service.

Conclusions

The most attractive model to use when pricing new services is value based pricing. But this requires a very good understanding of your total cost structure (so you need to perform the analysis outlined in Cost Based Pricing) and you need to understand the existing market and competitive price points. Finally you need to really understand your customer and their needs. If you can succesfully navigate each of these points you can build value based prices that match your service offerings and your final challenge (and not to be under-estimated) is to express these to the customer in a way that defines the total value you bring as part of the service.

The above holds true for most service businesses but what are the implications for the SaaS market in particular? Based on our experience (and that of industry peers and colleagues) of working with a number of software product vendors who are planning or making a transition to a SaaS model there are often major knowledge gaps in each of the areas described above (cost, market & value). Many ISVs significantly under-estimate or miscalculate their overall costs when they build their cost models. The implications of assuming new areas of responsibility from the customer such as hosting, security, compliance, resilience, reporting,  redundancy and so on are often missed.

In addition to problems on the costing side, many ISVs really struggle to both calculate the overall value they are bringing to the customer with their new SaaS offering and express this value to the customer in a convincing and compelling manner. Instead, market based pricing is often used (almost blindly). If competitor X is charging $50 per seat per month for their application then the new entrant will decide they must charge $40. This can lead a race to the bottom that serves nobody any benefit.

If SaaS vendors are to thrive and their customers to receive the best possible service then both parties must be fully aware of the value being offered. To achieve this, the SaaS vendor must get closer to their customer, understand their needs and continously improve the service they offer based on this knowledge.

Later this year, Servitizer will be launching our suite of applications (as a service of course) that help companies define, design, price and deliver new service offerings. If you would like to register an interest in beta testing these applications within your business than please complete this form.

Steve

BizCamp Event – September 19th Dublin

For those of you near Dublin on the 19th of September, the BizCamp conference is taking place at the Guinness Storehouse. This free to attend event is a great place to meet with an expected 400 entrepreneurs to share ideas, experience and knowledge in a broad range of business areas. I will be giving a presentation on how Software-as-a-Service (SaaS)  is changing the structure of the software (and broader IT) industry and the various implications this has for businesses (a process known as servitization).

Hope to see you there.

Steve

SaaS and the Servitization of the Software Industry Part 2

In the first part of this post, I explored some of the historical trends that have led the software and IT  industry in general to be structured as it is today. The key point is that for most enterprises a gap exists between themselves as users and purchasers of software and the actual software vendors. The gap is filled by third parties such as value added resellers (VARs), system integrators and outsourcers as well as other elements of the distribution channel such as retailers and distributors and all the technology infrastructure that supports them. So the big question then, is how is this large group of intermediaries affected by such a fundamental change in the customer/vendor relationship that SaaS potentially brings?

To try to answer that question it’s necessary to break it down into a number of different elements. It’s also necessary to set some sort of context as terms such as enterprise customer and software vendor are quite broad definitions. The following sections try to provide this context and work through each key area of impact for SaaS.

The Scenario

Software vendors come in all shapes and sizes, as do their applications and customers, and the impact and uptake of SaaS will be different depending upon the demographics involved, so for the purposes of this exercise I will assume the following:

The customer is a mid size enterprise with multiple office locations and 5000 staff. They have outsourced most of their IT functions and assets to a 3rd party outsourcer but retain a team of IT strategy, governance and architecture staff.

The application suite they are thinking of migrating to a new SaaS vendor is currently implemented using an on-premise system that runs on on multiple geographically distributed servers with a client-server architecture and various customisations made over the years.

The Players

There are a number of participants in this, fairly typical, enterprise ecosystem both in terms of job functions and organisations. They are broken down as follows:

Enterprise Customer

These are the people using and paying for the software application and its supporting infrastructure. In previous years this would have included a sizeable IT department that installed, configured and supported the application environment but most of these functions have been outsourced to a third party now and the remaining IT staff are a small team who set the corporate IT strategy and framework.

The Software Vendor

There are actually a number of software vendors installed within the enterprise. These are traditional on-premise, perpetual license vendors whose software is a mix of server, client and client-server applications.

The Infrastructure Vendor

Like most enterprises, the customer has purchased and deployed a range of computing and infrastructure systems over the years and this has led to the building of data-centres in major locations consisting of racks of servers, storage, networking gear and remote access equipment – all to power and provide access to the enterprises software applications and associated data.

The VAR / System Integrator

This organisation has resold the applications and servers of the existing infrastructure for some time. They are a channel partner of the primary software vendors and offer a broad range of services to the enterprise customer including design, installation, configuration, optimisation and customisation of the existing applications. In recent years their scope and level of activity has been squeezed somewhat by the outsourcing organisation who now operates almost all of the enterprise IT infrastructure under a 5 year deal and is taking on many of the activities previously performed by the VAR.

The Outsourcer

The outsourcer is a large managed services business who specialises in providing a complete turnkey IT solution to enterprises whereby they take over the support and operation of the enterprise IT environment including the transition of enterprise IT support staff and potentially assets such as data-centre equipment (servers, network equipment etc).

The Transition to SaaS

So somewhere along the line, the enterprise customer decides to move to some/most/all (delete as required) of their application needs to a SaaS provider. In general industry terms this is going to be a slow but steady transition. All analyst estimates and current data show SaaS deployments out performing the market (in terms of percentage growth) by a very significant margin – albeit from a much lower base – so over time the transition will become more prevalent. Of course the pace of change and impact will vary enormously between particular customers and particular application segments but again for the purpose of this discussion lets assume it  happens nonetheless and focus on its impact.

The Drivers

Well you can look at any SaaS vendors list of benefits to see the claimed advantages of a SaaS model but here are some of the obvious ones for our example enterprise:

CapEx Savings

When an enterprise moves from an on-premise (lets assume server based) application deployment to a cloud based SaaS offering there is a significant transfer of infrastructure responsibilities. All of the server side hardware, software and related infrastructure is no longer required in-house (again this assumes a complete SaaS hosting scenario rather than some sort of hybrid model). This will result in CapEx savings in the following areas (but I will address the issue of current versus future savings later):

Servers

The server compute hardware is no longer required in the enterprise data centre for the SaaS migrated application. In addition to the hardware costs there are also things like OS licenses, virtualization licenses and so on.

Storage

Whether inside the servers or in external dedicated storage infrastructure, this hardware is no longer required when the application it serves moves to the SaaS cloud (there will of course be storage needs in the enterprise for some time to come though).

Networking

The networking gear that lives within and between the enterprise data-centres such as Ethernet switches, routers, internal firewalls, load balancers, remote access equipment etc. These are all in place to provide connectivity services to servers that are no longer required when the applications move to the SaaS cloud.

Data-Centre Facilities

This covers all of the facilities infrastructure to host the servers and networking gear such as racks, UPSs, air-con, cable systems and so on.

Lastly, but certainly not least, is the licensing costs of the on-premise software itself.

In summary, there is a lot of capital  costs that are directly impacted by a large scale SaaS migration. I will touch on the flip side of this issue later on.

OpEx Savings

There are again very significant operational expenditure savings to be made within the enterprise as a result of a large SaaS migration. These fall broadly into two camps – the server/data-centre operating/support costs (directly related to the CapEx saving listed above) and desktop support costs. The data-centre cost saving are more obvious and quantifiable but when you factor in the implications of a web delivered client for the SaaS application that is now the responsibility of the SaaS vender, there are potentially significant savings in desktop application support, deployment and maintenance.

The savings in OpEx then are primarily about people costs – the roles and responsibilities normally paid for directly by the enterprise for on-premise activities are now supplied by (and paid for indirectly to) the SaaS vendor.

There are also annual maintenance costs for on-premise software and infrastructure to be factored in and finally there are the utility costs of powering the various enterprise data centres.

The Constraints

While the benefits above may make the transition process seem like a no-brainer, there are of course a number of constraining factors to consider. Here are some of the commonly cited ones:

Existing Infrastructure Investment

While there are clearly major CapEx and OpEx savings to be made by shifting responsibilities to the SaaS vendor these are significantly diluted by the fact that the enterprise has already paid for and implemented its current infrastructure (even leased equipment will have term constraints). This blurs the ROI figures unless you take a longer term view. If the enterprise decides to migrate a large piece of its application infrastructure to a SaaS vendor its going to be left with a lot of redundant hardware and data-centre facilities, much of which is already amortised.

Of course by taking the longer term view the enterprise can see the savings realised both in terms of reducing future on-premise expenditure for growth and also legacy support. The difficulty is during the transition period when only some of the applications are moved to SaaS and so the data-centre needs may not be reduced as quickly or significantly as first thought – it probably means more empty space in the data-centre rather than smaller or no data-centres until a certain tipping point is reached in terms of SaaS migration.

The Costs Of Change

Another major constraint is the perceived and real costs of moving from one application platform to another. Inevitably, it is going to cost the enterprise time and money to assess, design, plan and implement any such transition. As in all such situations, the benefit of the new model must really appear obvious and significant to entice the customer to proceed.

In particular, when an outsourcing relationship is already in place there will be cost and contractual issues to be addressed if the SaaS migration will reduce the need for equipment and people that the outsourcer may have acquired directly from the enterprise.

The Vested Interests

The enterprise is not making decisions about the migration to SaaS in a vacuum. The various partners involved in the enterprise ecosystem listed earlier, particularly the VARs and Outsourcers, have an important role to play in the decision making process. Because a major SaaS migration will alter the CapEx and OpEx models of the enterprise, it will also have a major impact on those 3rd parties which form the CapEx and OpEx costs. This is in addition to the existing software vendors who will fight hard to maintain their business.

The Impact

Okay, so assuming that the enterprise navigates the various issues previously outlined and embarks on a major shift towards a SaaS model what are the likely impacts for the major participant groups? Using the same groupings listed earlier on, here are some thoughts:

The Enterprise

The impact on the enterprise will vary depending upon the nature of their existing application environment and the level of outsourcing they have already contracted in. If there is a largely in-house IT team then clearly there must be an impact on this group. The focus of the in-house IT organisation must shift from building and delivering IT services to defining them and measuring their performance and business impact. Many enterprises will already be some way down this road through outsourcing but SaaS will have an even greater impact.

There are some particular issues that must be addressed differently when the applications and data are being delivered from a SaaS vendor. These involve policies and procedures for data security, compliance, privacy, availability, redundancy and so on. The enterprise must ensure that the SaaS vendor meets and delivers on all of these items and implements the necessary contracts and SLAs to enforce them.

The enterprise must also calculate the long term costs of the move to SaaS and this must be done holistically by comparing the subscription costs of the SaaS vendor over a long time period against the savings in On-premise CapEx and OpEx.

If carefully considered and managed however, the enterprise has a lot of upside from this transition. There is almost an inevitability about this trend too. If you look at how the electrification process began in enterprises during the early part of the 20th century it has similar parallels – enterprises first saw electricity as a differentiator and built power generation plants next to their buildings for private use. The private power plant was seen as a strategic asset by the enterprise and the early power industry was structured around supplying, installing and operating on-premise power generation. It took some time for enterprises to accept the notion of some external 3rd party providing power on-demand from the grid. You could view the evolution of global manufacturing outsourcing in a similar way.

The Software Vendor

By this I mean the incumbent on-premise vendor. Clearly a major industry shift towards SaaS will dramatically change the structure and fortunes of the software industry and its vendors – over time. The implications for existing on-premise software companies and the appropriate strategic response is a tough call. But in many ways its a tough call in relation to timing only. How long should an ISV wait before implementing a SaaS strategy and then how quickly should it migrate to it fully. These are typical questions that any business operating in an industry undergoing radical innovation and change must decide.

But whatever the timing, the competitive pressures are certain. Again in typical fashion, new entrants are moving in with completely different business models than the existing software companies. Now many of the existing companies are also beginning to move, so that creates pressure from within the existing industry boundaries and beyond.

There is also something specific to consider in terms of timing and strategic options for ISVs. The SaaS vendors are not just offering the same sort of software that happens to be delivered over the web – they are in some cases creating entirely new (and often proprietary) ecosystems. Salesforce.com’s Force platform is a good example of this, by creating a rich platform and getting to a certain critical mass of customers they can now become more than just a vendor but a decision point for the enterprise customer. As the enterprise does more work on the Force platform, it becomes attractive for them to take more applications that are integrated with their datasets stored on Force than in another platform (particularly another on-premise platform).

So the more time that passes, the more external influencers that the ISV needs to accommodate (I guess this swings both ways though and at least the late movers have many more platform options available).

So the end result for the on-premise software vendor? Well in most cases they will need to embrace the SaaS model in the longer term so its now a question of when and how.

The Infrastructure Vendor

As SaaS becomes more dominant then the infrastructure vendors will find the purchase volumes shift increasingly from the enterprise to the service provider space (where the SaaS vendors will be hosted). As the server and storage needs on-premise decrease (or at least don’t grow as fast in the short to medium term) then all the related connectivity and facilities are impacted too. Instead, the enterprise application needs will focus on edge connectivity (and protection etc) with more bandwidth required and possibly direct (virtually) private connections to the larger SaaS providers.

The VAR / System Integrator

This group faces significant change. As SaaS brings the enterprise customer much closer to the SaaS vendor architecturally and commercially, many of the services provided by the traditional VAR / SI become less or un-necessary. The entire on-premise design, architecture, implementation, upgrading and related activities no longer apply in a pure SaaS environment. So is this the end of the road for this group? No, but it is a major fork in the road and they need to re-think their strategy and service offerings.

The strength the VARs have today is their customer relationships and the insight this gives them into their customer business needs and processes. This is of significant value. For most VARs they can adopt a two pronged approach (fork pun intended). They will obviously continue supporting and working with their existing customer base as they are today but can also look at the emerging SaaS ecosystem and value chain to see where they can play a role there too. If they get this right then they will not find themselves pushed out of the value chain as the SaaS migration continues. The SaaS vendors meanwhile, need to better understand their new customer base and can leverage the VARs to achieve this. Obvious activities include:

Customer Aquisition

This is a costly business for the SaaS vendor as can be seen by the level of investment they make in sales and marketing.

Customer Migration

Depending upon the application on offer there will be a level of migration from the customers existing systems to the SaaS application. This will involve the movement/population of key data and some level of customisation of the SaaS application to better align with the customer business needs. SaaS applications often differentiate themselves by offering a high degree of UI customisation and the integration of a range of optional software modules – a trend that will only increase going forward.

Onsite Training

Another major cost and concern of the enterprise customer is to roll out the new SaaS application to their userbase and a degree of training is likely to be required for this purpose.

In each of the areas above the VAR can play an important role in this process and it’s aparent today that many are engaging in this way through partnership programmes such as that offered by Salesforce.com and others. So in summary, the VARs have an important role to play in a SaaS future but it is different to the role they play today.

The Outsourcers

This group have probably the most to lose from a large scale migration to SaaS. They have built large businesses around taking over and running the on-premise infrastructure and related support functions. When the applications are no longer running in the customer data-centre, or the outsourcers data-centre on their behalf, their role is greatly reduced. There will of course remain a major role in the management and support of the front line IT services such as desktop PCs, laptops and printers but their backend role could go.

In response to this, the outsourcers can of course take an active role in the backend infrastructure on behalf of the SaaS vendors – as indeed many will given their current standing in the industry. But they are up against some serious competition from the likes of Amazon, Microsoft, Google not to mention the SaaS platform vendors such as SaasGrid, OpSource, Force.com and the huge variety of internet hosting companies who play in this space.

So in conclusion, there are both challenges and opportunities ahead for the software industry and the IT industry in general as it servitizes through a large scale migration to SaaS and it will certainly be an interesting transition to be part of.

Steve

SaaS and the Servitization of the Software Industry – Part 1

The software industry is going through a period of great change. The long established model of the software products business – you buy a software product by way of an upfront perpetual license and then install and maintain it on your PC or server – is moving to a model where you pay to use the software but no longer have to install and maintain it. The software vendor has taken the product functionality and features you want and radically changed how they are delivered. In the process they have taken away a large number of requirements and responsibilities that you once had and replaced them with services that you pay them to perform instead. This is a great example of servitization in action and it will fundamentally change the software industry.

The irony in this process is that the software industry is actually returning to its original form, rather than creating a brand new one. But in doing so it will shake up the entire IT industry structure and the fortunes of those involved in it. This is due to the fact that servitization, by its very nature,  brings the product vendor and the product user ever closer together through the use of services. While this is typically of benefit to both the vendor and the user it often changes the role of the distribution channel (distributors, resellers, retailers, integrators and support staff) in a very disruptive manner (both positively and negatively).

It’s worth looking backwards here for a moment to understand how we might go forward. In the early days of the commercial computing industry the number of participants involved in the value chain and their responsibilities were pretty well defined. The ‘computer company’ supplied and maintained all of the hardware/software and performed most of the operational functions while the customer focused on actually using the computing resources. So there was a fairly high service element involved (the vendors staff taking care of almost all operation and maintenance) and there was very little separating the vendor from the customer in terms of 3rd parties.

Over time and particularly with the advent of the PC and distributed computing during the mid 1980s the landscape changed dramatically. The software industry split from the hardware industry and the number of vendors in both exploded. The decentralisation of computing resources via the PC created huge variety in terms of hardware, software and applications. While this led to incredible innovation and industry growth it placed an increasing burden of support and maintenance on the customer. To cope with this burden, enterprises recruited ever larger teams of IT staff to install, operate and support their computing infrastructure. The infrastructure itself also ballooned, with vast enterprise data-centres built in multiple locations to support the computing needs of the organisation. The software industry meanwhile was quite distant from the end user. They focused on developing new software and relied on a growing distribution channel of partners and retailers to actually sell the products and perform much of the support, they didn’t see much of the end users themselves.

As the complexity and variety of enterprise computing environments increased,  ’system integrators’ grew to fill the gap between the software vendors and the end users. The integrators, many of whom were large global organisations, began to take on ever more responsibilities on behalf of the enterprise. During the past decade in particular, there has been a large transference of responsibilities, data-centre facilities and equipment and IT support staff from the enterprise to the integrator through a large scale process of outsourcing. During this period the software vendors also became interested in selling more than licenses and many expanded their own paid for service offerings, first with tiered levels of premium support and later with professional services and consultancy.

And that is pretty much where we are today. Well not quite – there are some large (computing) clouds on the horizon and the stucture of the IT and software industries are going to change dramatically over the next decade. I will take a close look at Software-as-a-Service, the structural impact of servitization on the software industry and all that SaaS in the second part of this post.

Steve

Product Innovation Through Servitization

The purpose and process of servitization is to move from a product based business model to a more integrated product/service one. The objective is to create a product-service continuum, this is a circular relationship where products create service opportunities which in turn create product opportunities, which create service opportunities and so on.

This cycle obviously improves business opportunities and powers increased sales and revenues (of both product and service) but it also has a more fundemental impact on the product – it becomes a major change agent and driver of product innovation. The reasons for this are pretty straightforward but worth exploring all the same.

Service creation, development and delivery are all about understanding your customer. You begin by seeing your customer through the eyes of your product and evolve to seeing your product through the eyes of your customer – this is a very significant stage and is the basis for servitization. As you learn more about how your customer views and uses your product you begin to create services around it. These new services should bring more business value to the customer (otherwise they won’t be willing to pay for them) and more business revenue to your own business. But they also do something else – they bring you ever closer to your customer and their business needs and objectives.

This is because unlike products, services are primarily people driven. They provide a more human relationship between the product provider and the customer. This in turn provides more insight into the customer. The greater the level of service integration with the customer the greater the insight and this leads almost inevitably to one of the most fundemental aspects of product innovation – fulfilling a customer need.

The service insight drawn from customer interactions and observations therefore, must be structured, planned and given a formal role in the product development process. Unfortunately, this does not happen in most businesses at the level possible. Typically, the only formal service process that feeds into the product development process is fault reporting and management. In this case a customer reports a fault with the product and (if the support infrastructure is well designed) this leads to a product improvement. This is a very reactive process (although critically important) and misses a much greater level of insight available.

Instead, your service personnel must be always looking at how the product is used by the customer, how it fits into the customers larger eco-system and business processes and how it could do better. This requires something of a cultural shift, a change of mindset, and it takes some work to implement effectively. But, once in place, it can drive significant product innovation through a better understanding of what the customer wants and needs.

Steve

Servitizer Launches SaaS Consultancy Practice

PRESS RELEASE – Dublin, Ireland, August 4th 2009:

Servitizer, an Irish based company that helps businesses build and develop a services portfolio around their product portfolio, a process known as servitization, has launched a dedicated Software-as-a-Service (SaaS) consulting practice. The SaaS consulting group will help software companies assess, prepare and migrate to a SaaS model – a significant trend in the software industry.

Servitizer CTO, Steve Plunkett, who leads the SaaS practice said “The software industry is going through a period of disruptive change. Technology enablers including cloud computing and rich web client capabilities, combined with new commercial models built around internet economics have created a likely tipping point towards web delivered applications and the Software-as-a-Service model. Independent Software Vendors of all sizes need to assess these developments and position themselves for success in a very different future. But getting there is not necessarily easy or straight forward. It changes almost everything – the relationship and responsibilities of the client and vendor, the client base and market size, the underlying technology, the fundamental business model, the structure and skillset of the vendor organisation and the entire partnership ecosystem that surrounds them. Any software business considering moving towards a SaaS model, as they should, must fully understand all of the implications this involves. Servitizer has the expertise and the methodologies necessary to smooth this transition and avoid the many pitfalls such a disruptive change can present.”

The company has also launched the SaaS Accelerator Workshop, a one day condensed training session aimed at software company executives, to help them quickly understand all aspects of a SaaS model and how to position their own company for success.

John Flynn, Serviter CEO, said “Servitizer was established to help product based companies develop and innovate using services. This trend from a product orientation to a product/service one is called servitization. The level of servitization that companies and industries are undergoing varies but the movement within the software product industry from a perpetual license model to a SaaS one is probably the most profound. In order for any software business to make an informed, timely, decision about whether, how and to what degree they should embrace a SaaS model they need to take on a new knowledge base and apply it to their own specific situation. With this in mind we have created our SaaS Accelerator Workshop. This workshop condenses all of the important information and knowledge that business leaders need to quickly assess and plan their own SaaS strategic direction. The workshop touches on every key area of the SaaS model from the business models, customer and market changes, technology requirements and implications, organizational development, partnerships, migration strategies and immediate next steps to consider. The target audience is business leaders (preferably the leadership team) from the CEO to CTO, CFO, COO, CMO, Sales directors and others who make important decisions on behalf of the business.”

For more information on Servitizer and its SaaS offering, visit http://servitizer.com

ENDS

Servitization Momentum Is Increasing

We attended a very good event at Cranfield University last week (details in earlier blog post). The faculty, staff, guest speakers and audience members were great and the quality of discussion was excellent. Cranfield are taking a leading position in this field and it shows in the expertise of the team there and the Product Service Systems (PSS) programmes underway. Cambridge are also doing some important work in this area and a presentation from one of the guest speakers, Guangjie Ren, a PhD graduate from their Institute of Manufacturing was particularly insightful.

One important take away from the session is that the study and application of servitization is accelerating. Another is that its been a long time coming and is more complex than was originally anticipated. Governments are increasing funding in this area, research institutions are expanding their programmes and businesses are becoming much more aware and active.

The net effect of both increased inputs (funding and research) and increased outputs (organisational and marketplace change) is that more companies are doing more in the whole area of service innovation, at a faster pace, than ever before.

There are various potential reasons why this acceleration is occurring now. One is the general accumulation of research and experience since the term servitization was first coined in 1988 – time and scale may have reached a tipping point. Another more likely explanation for the timing  is that the economic background and the commoditizing impact of global competition has focused attention on ways to differentiate and innovate through services.

Servitizer profiled in the Sunday Business Post

We were delighted and flattered to be profiled in this weeks Sunday Business Post, the leading business newspaper in Ireland. Servitization (or service innovation) is an important trend that companies are beginning to embrace to differentiate themselves and create more value for their customers and we at Servitizer are proud to be in the vanguard of this development.

We are working with a number organisations here in Ireland and internationaly to help develop their services capability and the increasing awareness of this area of business is more relavent in todays economic climate than ever before.