The Coming Transformation in Software Business Models
The IT industry is in the midst of a massive structural shift toward a next-generation compute platform called the 3rd Platform. Interestingly, the rise of the 3rd Platform is happening alongside a customer revolution. Consumer-like expectations for simplicity and transparency are dictating pricing models and terms. Both trends are having ripple effects across the industry. We’re now seeing new business models that align more closely with business outcomes and customer experiences becoming the preferred way of monetizing software.
From a strategy perspective, it’s necessary for any provider faced with a transition to decide whether to continue offering traditional products, and to whom. Most software providers do decide to maintain an existing approach while they grow a new business and offer customers the flexibility to choose. This can create challenges, such as how to market and sell the new approach alongside the traditional model and whether customers can mix and match or move from one to the other. Providers that decide to shift away from the traditional model entirely must decide how to convince their installed base to switch over.
In today’s highly networked, increasingly mobile and decentralized world, software providers must realign their processes, policies, systems, and organizations. Companies with traditional businesses can be at a disadvantage when it comes to the demands of newer pricing and deployment models due in large part to legacy processes and systems.
For a software monetization strategy to be effective in this new era, software providers need to provide fully-featured, transparent, and user–friendly pricing and packaging. Elements of flexibility and simplicity must be equally balanced and systems must be agile and highly scalable. Key capabilities include:
- Providing a single view of the customer
- Increasing automation to replace inefficient paper processes
- Monitoring and reporting on usage in real time
- Simplifying customer onboarding and billing
- Protecting intellectual property
Beyond strategy and policies, software providers need to consider whether existing operational systems can be extended to support new business. Updating the technologies that support the software business are as important as hiring the right people, or embracing a company culture that supports 3rd platform tenets.
The required changes will be unique to each provider, but will likely impact almost every aspect of the organization. As software providers consider how to establish a solid, but flexible, technology-based foundation on which to shift and grow, they should also take time to reflect on their own core competencies. What kind of customer experience do they want to provide? What competitive advantage do they hope to achieve? What should the business look like in five years? And, does this include building and maintaining technologies to support software operations, or sourcing from third parties that focus on software monetization?
Please also see the supporting document “IDC Spotlight – Supporting Software Business Transformation with Systems Designed for the Task”.