So far we have discussed selling hardware, software and information. One of my colleagues suggested we should address the selling challenges of the Software as a Services business model.
Hi Bruce,
These are the type of considerations one of the software company I am working with used in shifting their business model by 180 degrees 3 years ago. They got rid of their sales department scattered around the US and started to focus on an aggressive web marketing campaign. Anyone can download their software, no license charge (ever) but a revenue model based on an “optional” subscription annual fee. The software is world-class and has been adopted by many major organisations: Xerox, Lockheed Martin, Motorola, US Army….
Open Source:
The open source model I am referring to follows the “Microsoft Public License” (MsPL) strategy. Here are a few arguments behind this strategy and some of its benefits:
No License cost:
These are the major benefits for customers:
- The very first money a customer spends is already focused towards solving a problem and is not burnt in expensive evaluation cycles
- SOX, US-GAAP and revenue recognition policies for public companies have led to pushing more risk to the customer with traditional license contracts in the recent years. At the same time it puts a lot of pressure on a Sales Force of software solutions to make license deals as big as possible. With a lot of money involved customer are pressured to engage in long evaluations before making a buying decision. The open source model has eliminated these hurdles altogether
- Thus software providers and business partners can provide added value from day one without pushing the sales of software but setting focus on services and quick results
- Implementation projects do not need be made big and global from the start to justify high license investments and they do not need to feign high business value (only earned in later phases). They can start small and grow global, earning business value phase by phase
- To pilot a solution using such a model does not necessarily require CIO (IT) approval. Proof-of-concepts can be done at departmental level giving a business-champion all back up to demonstrate the potential improvements and business value
Regards Daniel Gelinas
I can think of several new issues and dilemmas that this model presents for the sales process:
- Is there a point in which we can consider the customer closed or committed to our product?
- Does the sales function evolve into a customer care function?
- How must the “sales” compensation plan be altered to take this revenue model into account?
- How do we manage sales activity?
{ 3 comments }
For your first point:
That’s the whole idea…removing the first barrier for the customer to try and deploy at any scale prior to disbursing any amount (toward the software vendor) before the real tests are performed…which include end-user acceptance. The first commitment is when the client decides to buy (on a voluntary basis), the yearly subscription…which typically happens after reaching the proper confidence level that the solution meets the business requirements.
Daniel,
It sounds like the vendors are going to have to take the entire implementation risk. Based on my experience, the most successful projects turn out to be when the vendor and customer share the risk. Your example seems like a potential master-slave relationship. Quite one sided.
B
Hey guys!…I thought I would chime in, bring my guitar, a few marshmallows and sing kumbaya around the camp fire…
The whole idea of sales has to be rethought in those business model I think. The idea is that the product brings enough value to the table to sell itself. That’s why its free in the first place. Its the new way of doing business…you deliver value, then you get the benefit. Sure the company selling the solution takes the risk…why not…software is now such a commodity…
In those cases, the add-on services are sold on the premise that the free software has already proved value in use. The user/customer experience is key her. The sales model is sort of exploded into a customer service/satisfaction/experience model. Confidence is built in day to day use, credit cards numbers start flying.
Each and every interaction with the brand and company must be engineered to provide value, that’s how Redhat managed to make money. That’s how a company like salesforce.com became such a hit…Zapos is another example of non salesy approach..customers and their experience with the brand at the heart of the sales strategy.
There are still few success stories out there so the model is still being refined in fire. The next 10 years will prove to be interesting…
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