Achieving a Competitive Advantage in the Cloud
In 1997, a pair of management consultants – Michael Treacy and Fred Wiersema – published a book entitled The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market, which suggested that companies could only become dominant players in their industry by achieving a proficiency in one of the following areas:
- Product differentiation
- Operational excellence
- Customer intimacy
Treacy and Wiersema believed the cost involved in gaining superiority in more than one of these disciplines was prohibitive, and recommended that corporate executives focus their resources on only one or risk becoming mediocre in multiple areas and losing their competitive advantage.
Today’s business environment is even more challenging. The competitive pressures have never been greater. Fortunately, software and technological innovation is making it possible for businesses to gain a competitive advantage and deliver on all three of Treacy and Wiersema’s disciplines – simultaneously.
Advances in the Cloud have given businesses unprecedented visibility and data on customers. Data that can help you understand your customers, better serve their needs, and in turn, increase their loyalty and lifetime value. Opening up new ways to connect and engage with customers leads to a deeper understanding of what customers need to remain loyal and provides high customer lifetime value.
The most prominent example of this capability is Salesforce.com. It has certainly achieved a product leadership position in the software industry by pioneering the Software-as-a-Service (SaaS) business model. It also continues to be a product innovator by rolling out new service capabilities on a regular basis with its quarterly releases.
The multitenant software architecture that underlies its SaaS offerings has also enabled Salesforce.com to become a market leader from an operational efficiency point of view because it permits greater scalability. This service delivery model has enabled Salesforce.com to grow at a faster rate than any software company in history while continuously expanding its product portfolio.
And despite becoming a massive company in a relatively short timeframe, Salesforce.com has also been able to retain an enviable level of customer intimacy that continuously yields high customer satisfaction scores, renewal rates, and add-on business. As a result, Salesforce.com has made the “land-and-expand” market penetration strategy an industry best practice.
By attaining a market leadership position in all three disciplines, Salesforce.com has been able to defy the “law of big numbers” by generating substantial revenue growth while accumulating a larger installed base of customers.
Salesforce.com isn’t alone in proving Treacy and Wiersema’s theory wrong in the age of the Cloud. Every Cloud category leader is emulating Salesforce.com’s model for success, including Workday, ServiceNow, and NetSuite, among others.
Given the growing number of successful Cloud companies who are proving that the old disciplines are no longer mutually exclusive, a broader set of companies are attempting to gain some of the same market advantages. Established ISVs like Microsoft, Adobe, and Intuit are following the lead of the “born-in-the-Cloud” software companies.
In each case, the disrupting companies have leveraged a new generation of software functionality to become product innovators. This allows them to create new forms of customer intimacy and gain exponentially greater operating efficiency than their predecessors.
Becoming more customer-centric, innovative, and efficient may sound appealing, but it also requires the right kind of software licensing capabilities to properly monitor and track customer usage patterns, operating metrics, and to identify new market opportunities.
While the changing nature of software design and utilization pose plenty of software licensing and monetization challenges, a new generation of software monetization solutions that includes cloud-based licensing is creating even more opportunities for organizations to attain market dominance.
Cloud-based software monetization solutions can address these issues and do more than simply control access and permissions for software. Software monetization solutions also provide an invaluable source of information to help companies meet their customers’ needs and keep them as customers.
These cloud-based software monetization solutions can also help companies increase the value of their customer relationships. Research shows that the longevity of the client relationship directly affects the financial stability of a company. Building strong customer relationships can even reduce sales and marketing costs, as well as the likelihood that the customer will defect to a competitor.
Licensing activation, entitlement management, and enforcement are software licensing capabilities that allow you to monitor, measure, and maximize application usage. They are essential to delivering products that people want, at the right time, in the way they want to consume them.
For instance, the right software licensing capabilities can enable an ISV or subscription service provider to improve trial conversion based on customer usage data. This information can also predict and prevent churn, or identify additional up-sell/cross-sell opportunities. What’s more, greater software intelligence can drive better product/market investment decisions and enable companies to gain a competitive advantage in a rapidly changing market.
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