Transcript Service-Based Software Models

Issues in Shifting from a
Product-Based Business
Model to a Service-Based
Model
Rich Mironov
Berkeley-Tekes Innovation in
Services Conference, 28 April 07
Thesis: Service-Model Thinking
 Most software firms use product-based models
 Up-front software licensing
 Customer responsible for deployment and operation
 Firms struggle to understand and adopt service models
 Demands new thinking and skills
 Entirely new Operations function; reconceived marketing
 But growth of service business models is fueled by…
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Visible successes (e.g. SalesForce.com)
Massive venture investment in service models
Broadband connectivity enabling remotely hosted services
Increased willingness to offload non-strategic applications
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Defining Software Business Models
 Product/licensing model
 Up-front licensing fee, optional maintenance
 Pay for full-deployment capacity or seats
 Software typically installed at customer site
 Subscription service model
 Per seat per month
 Typically hosted
 Transaction service model
 Per fax, per download, per transplant, per update,
per qualified lead, per session, per report…
 Service models force “shared success”
 Vendors must engineer success, not just software
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www.mironov.com
Sources: Pulse of the Market
 Front-line practitioner
 204 respondents to service-vs-product survey
 Working tech product managers and marketers
 http://www.mironov.com/more/survey_results/
 Consultant to 20 tech start-ups since 2001
 Defining software requirements, pricing models,
organizational impact,
 Business plans for two recent service start-ups
 Product strategy newsletter, ongoing VC discussions
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www.mironov.com
Business Model Survey
Surveyed current product champions about service-versus-product
 204 responses
 http://www.mironov.com/more/survey_results/
Pricing Model
 Product (license)
 Subscription service
 Transaction service
 Free, advertising, other
48%
23%
19%
10%
Job Role
 Product/service management, product marketing
 Corporate marketing, sales
 R&D, consultant, other
55%
24%
22%
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Top-Line Survey Observations
 Products slant toward enterprises and government
 Services have larger share of small/medium business
 Service sales cycles are 33% - 49% shorter
 Service PMs don’t use app logs to understand users
 24% vs. 1% for products, but should be 75%+
 PMs say that customers use only half of features
 Service PMs use product registrations more often
than user profiles to identify their users
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Selling and Upselling
Versus product model:
 33% faster close cycle for subscriptions
 49% faster close for transaction services
Different upsell models…
Selling new versions/upgrades
Selling more units
Higher-priced subscriptions
Adding more users
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Product
77%
81%
29%
44%
Subscript
45%
47%
83%
72%
Transxn
39%
50%
42%
32%
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Understanding Users
“We know which features/functions
our customers use via...”
Personal discussions
Tech support cases
Enhancement requests
Activity logs
Sales team feedback
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Product
54%
35%
27%
1%
28%
Subscript
47%
32%
17%
23%
23%
Transxn
50%
24%
11%
18%
32%
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Over-Featured Products
“I think my typical customer uses...”
Product:
Subscription:
Transaction:
48% of available features
48% of available features
52% of available features
Consistent over-design across models
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Broader Service Model Findings
 Software-as-a-Service naturally slows down revenue
from enterprises
 Also increases early capital requirements
 Drives need for focused upsell marketing
 Case study: Replicate Technologies
 Many “product” software firms lack core operational
experience for service model
 Hurdles are not technical
 Must rethink marketing, sales, operations
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Vendors Want More Colorful Story
 Licensing software firms are “grocers”
 Service firms are “chefs”
New requirements
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Service-based pricing (“Check, please!”)
Responsible to end users (diners)
Shared infrastructure (restaurants)
Personalized service (menus)
Service metrics (taste tests)
Continuous usage marketing (specials)
www.mironov.com
New Kinds of Service Metrics
Service vendors need Operations teams and skills
 Uptime SLA (“Application up 99.95% of the time except…”)
 Response Time (“98% of log-in take <1.5 seconds…”)
 System Capacity (“Add CPU when usage >60%...”)
 Support Escalations (“P1 first response
within 15 minutes…”)
 Reporting (“Billing reports showing
all customer transactions…”)
 Software Updates (“Push software
weekly at 1AM Sunday with roll-back…”)
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Rich Mironov: Background
 Principal, Mironov Consulting
 Consultant and interim executive for tech companies
 20+ pre-revenue start-ups and Silicon Valley technology firms
 Product strategy, business/service models, market needs
 Large tech company experience
 Engineering/product management at HP, Tandem, Sybase
 Technology executive/entrepreneur
 iPass, Wayfarer, Slam Dunk Networks, AirMagnet
 BS Physics Yale, MBA Stanford
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“So Your Product Wants to Be a Service...”
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