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Redefining your value proposition

Generating value and maximizing revenue through an integrated value proposition

Everything-as-a-service (XaaS) business models call for a reinvention of your value proposition, changing how products and services are sold, and how they create value. But before companies can transition to a service model, they must have an in-depth understanding of the intrinsic value they are creating for their customers

Tailoring your value proposition to the customer’s needs

Everything-as-a-Service models come in a wide range of flavors, from subscriptions to pure pay-per-use. Deciding on what model is most appropriate depends on a number of factors, including the industry, the product or service offering, the company’s risk appetite, the competitive landscape, and customer preferences.

Technology companies are quickly moving into the more complex territory of selling solutions—a combination of hardware, software, and services. Companies in other businesses such as industrials, automotive, and medical devices are increasingly shifting to technology and software-driven offerings. Advances in cloud-based computing have also increased both the feasibility and the attractiveness of hosted solutions, in an XaaS model. These trends are quickly changing the nature of offerings that companies bring to the market.

The Internet of Things (IoT) is a compelling example of a rapidly growing market that is forcing companies to seek flexible consumption business models as a way to stay competitive. Consider a company that once had a business model selling $2 lightbulbs. The company may now sell a smart lighting system that offers consumers the ability to control the lighting in their connected homes through a smartphone or wearable device app. The company may also offer ‘lighting as a service’ solutions to enterprise, commercial, and public sector customers such as cities to manage every light point across their network. This has the potential to totally transform how the company conducts its business.

For most companies, the challenge is to figure out what portfolio of offerings will be most compelling to customers under an Everything as a Service model. Generally, they will need to make this determination on a product-by-product basis, based on customer needs and competitive offerings.

Many businesses, particularly in the software and hardware space, have been selling to specific customer segments and enterprise buyers for years. As they reconfigure their products and services to offer more consumption-based options, it presents an opportunity to sell to other customers they may not have actively served in the past. For example, large enterprise information technology (IT) vendors are accustomed to selling multi-million dollar software implementations to corporate IT departments of major corporations. Now, with the move to flexible consumption, customers can pay as they go for cloud-based services; they no longer need to shell out large amounts of money up front for licenses and on-premise installations or upgrades. They can create on-line accounts and sign up for specific services without the need for major vendor involvement.

This creates a far broader universe of potential clients for solution providers. For instance, a pay-as-you-go model fits within the smaller budgets of business-unit IT departments, and increasingly these groups are making purchase decisions about software that meets their specific needs. Small-to-medium-sized businesses are also within reach. With the simple self-service, no-touch consumption-based model that characterizes flexibly consumed cloud solutions, providers can sell more cost effectively to these smaller customers.

Redefining offerings, packaging and delivery

As offerings become more software and data-driven, companies may have to set up entirely new channels and partnerships to take them to market. They also need to think about how the offerings would be delivered: Will they take the form of physical or digital goods or both? Will the software/services be hosted on the customer’s premises or in the cloud? Should the company invest in building its own cloud infrastructure or host the solution via a third-party provider? Software companies may want to consider offering cloud-based flexible consumption solutions while retaining their traditional models for customers that prefer to continue to consume the product in that way.

Packaging is also important because it provides customers with the configurability and scalability they need for flexible consumption. Companies are packaging a combination of hardware, software, and services to more effectively cater to customer needs and deliver value. Packaging has become a core focus for the media industry, where bundling and unbundling of content has taken on a new meaning. While some media and entertainment companies are unbundling content packages, others are offering customers the option to configure their own offerings by picking and choosing cable and streaming over-the-top (OTT) channels to accommodate their personal viewing tastes.

How will we sell? Changing roles for internal sales and channel partners

Technology companies are Expanding to a broader range of customers raises questions about the role of a company’s existing sales force, as well as its channel partners. Many companies have traditionally sold through channel partners because they may not have the infrastructure or the internal sales force coverage to sell to thousands of enterprise, commercial, and small-to-medium business clients. If those same companies begin selling directly to customers, or offering their solutions to customers on-line, this could cause friction with channel partners that feel they are being cut out of the equation.

Companies need to decide what role they want partners to play in the future and how that role will change. They need to look for ways to keep partners engaged and incented to sell their products and services. The same logic pertains to an internal sales force, which may have to be reorganized to sell everything-as-a-service offerings. Companies also need to think about how to tailor sales compensation and align sales incentives with the recurring revenue model for their solution offering—otherwise they may find their new offering fails to gain traction with the sales teams and consequently with customers.