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
Apr 02, 2015
Issues in Shifting from a Product-Based Business
Model to a Service-Based Model
Rich MironovBerkeley-Tekes Innovation in
Services Conference, 28 April 07
www.mironov.com2
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… 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
www.mironov.com4
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
www.mironov.com5
Business Model Survey
Surveyed current product champions about service-versus-product 204 responses http://www.mironov.com/more/survey_results/
Pricing Model Product (license) 48% Subscription service 23% Transaction service 19% Free, advertising, other 10%
Job Role Product/service management, product marketing 55% Corporate marketing, sales 24% R&D, consultant, other 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…Product Subscript
TransxnSelling new versions/upgrades 77% 45% 39%Selling more units 81% 47% 50%Higher-priced subscriptions 29% 83% 42%Adding more users 44% 72% 32%
www.mironov.com8
Understanding Users
“We know which features/functions our customers use via...”
Product Subscript TransxnPersonal discussions 54% 47% 50%Tech support cases 35% 32% 24%Enhancement requests 27% 17% 11%Activity logs 1% 23% 18%Sales team feedback 28% 23% 32%
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Over-Featured Products
“I think my typical customer uses...”
Product: 48% of available featuresSubscription: 48% of available featuresTransaction: 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
www.mironov.com11
Vendors Want More Colorful Story
Licensing software firms are “grocers”
Service firms are “chefs”
New requirements 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.com12
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…”)
www.mironov.com13
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
www.mironov.com14
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