Don’t own, just consume: Overcoming the barriers to software-based models

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Digital transformation is now part of everyday life for organisations across the world. It’s driving business decisions, improving customer experience and helping with innovation. But as disrupters like Amazon and Uber have set the pace for customer expectations, the demand for a more personalised and predictive experience is heating up.  

These customer expectations are not just impacting the B2C world. B2B organisations are adapting to cope with these changing demands. One example is the move to models that are often cloud based, supplied and billed in subscription models. Companies that were once entirely focused on selling boxes of products have shifted models to focus more heavily on software licensing to enable them to deliver these experiences. Look at Adobe, which once largely sold boxed discs containing its products but now enterprise cloud service subscriptions make up most of its revenues. 

Medical device vendors are also getting in on the action. For example, hospitals no longer purchase an expensive ultrasound machine outright; they pay for scans based on volume, making it a more accessible and affordable proposition for all, whilst creating a predictable and recurring revenue stream for the vendor.  

While this means end users receive an always-on service with regular upgrades, the shift in mindset and organisational change required to supply this is significant. And, as newly formed businesses with no legacy infrastructure enter the market, this change needs to be fast. But, from conversations with our customers and partners, we’ve seen several challenges to overcome before businesses can realise the benefits and open up new revenue streams. 

1. Bringing the whole organisation on board

For a digital transformation project to succeed, achieving buy-in across an organisation is vital. One common issue is a fear of change, with ‘server huggers’ often reluctant to move to the cloud due to a fear that they will lose ownership of their part of the business. Often, this is less fear of change and more concern over the knock-on effects it can bring. Shifting a business model from selling products to services requires a re-think in many areas of an organisation, from the IT services provided to how staff are incentivised. 

For digital transformation leaders, it’s important to take the time to explain the changes taking place and the benefits this will bring. Explaining, for example, how licensing can open up new revenue streams will help teams see that it’s vital to the organisation’s long-term success. Or, how being able to better protect intellectual property (IP) will help the company maintain its competitive advantage. Taking teams through this journey and showing the advantages at every stage at the process will generate buy-in and lead to more engagement in the process, improving its chances of success. 

2. Saying goodbye to legacy systems

With this resistance to change often comes a propensity to hang onto legacy or home-grown systems. Of course, this is often a credible concern, as businesses need to ensure new platforms and processes enable them to carry on serving customers without missing a beat, with their data always available. While it’s often necessary to have a ‘frozen middle’ during digital transformation projects – an element of legacy infrastructure that remains accessible and operable – but sooner or later this should be thawed. 

The key here is to have an agreed timeline in place, something that outlines the process, the testing that will take place and the milestones that need to be met before legacy systems are fully switched over. Most importantly, if a new type of software licensing model is being introduced, businesses should ensure that all the data required is stored in the correct place and fully integrated with new back-office systems and that the chosen system is scalable. This will streamline operations and ensure the full benefits of digital transformation can be realised. 

3. Preparing for change

Another unexpected obstacle tends to be around an organisation’s reluctance to adopt new, software-as-a-service (SaaS) models. Monthly upgrades to the SaaS version require their IT team to keep a closer eye on any additional updates or user education needed as a result. Moving from a cap-ex to an op-ex model means a new budgeting process, and dealing with licencing will also often require a new knowledge set. 

Whilst software licensing is a well understood practice, the ability to monetise services in different ways is often a new concept for businesses, it’s understandable that they may not have the right knowledge at hand. This has led to a lot of businesses bringing in enterprise architects to help lead change efforts and move digital transformation efforts outside of the IT team.  

For the businesses selling these software services, a fully consultative approach is required to take their customers through these journeys. Using expertise gathered from previous projects to help customers navigate potential challenges is key. Offering consultation on specific areas that may be new to a business, such as pricing models, will also help resolve any fears they might have, ensuring organisations are set up for success. 

Moving from a hardware to a software-based model, or from perpetual to hybrid, consumption or subscription-based models opens up many opportunities for businesses – but only if it’s done correctly. The ability to activate and provision in the cloud, protect IP and introduce IoT capabilities are all possible, but first businesses must put the necessary process in place, with KPIs to match. Once these are all in place, businesses can take advantage of new models that will help them innovate more quickly and provide stronger data that can be used to protect and grow. If I could offer one single piece of advice when undertaking such a project, it would be: ‘don’t underestimate the impact to your entire business of doing this’. These projects should have c-level buy in and ideally be driven by operations in order to be successful long-term.

Jamie Longmuir, Regional Director of Software Monetisation at Gemalto

Image Credit: Wright Studio / Shutterstock