Changing business model due to external factors

Competition

Changing business models due to external factorsSometimes there is a need to change the business model due to some external factors that we can’t control. This morning I read an interesting article David Linthicum who is known to track the cloud market and write about current trends. Today, he wrote about the fight between Netflix vs. Verizon and how these companies are escalating their fight of who owns the customer and whose fault is it if Netflix content does not stream well. Lets analyze the core business for both parties seen from consumer perspective. Netflix get paid by the consumer to be able to stream movies and Verizon gets paid for the consumer to use the bandwidth. The question that now remains is whether the consumer has the right to restrict the consumer what services they use, how they use it and if this creates a monopoly for Verizon in the service delivery if they force the consumer to only consume Verizon content. The same formula applies to other vendors such as AT&T U-Verse and many others. I am using U-verse in my household and if there is a day when AT&T starts to dictate my consumer behavior, I will be moving on to another service.

It is interesting to see how success always leads into trouble for the one that is successful and in this case it is Netflix. Verizon wants to block the success by restricting and causing an unpleasant user experience for the consumer. It is the consumer that pays the penalty in the end of the day. If you love Netflix, you need to have a service that supports it and you can’t have a service provider dictating your tastes. That is the old-fashioned way and the new generation of users will not tolerate this type of service delivery.

The point in this article is really to provide yet another example of a business model that is evolving and in this case I am talking about Verizon. This organization needs to realize and build its model in a way that enables consumer to see value in its service and not create artificial blocks for its customers. I do understand that Netflix is using Verizon bandwidth, but that is the same with any service that the consumer is going to utilize. Same applies to Hulu and whatever other video/movie service happens to be popular. We have seen so many drastic moves in business models the past 3 years from market leaders going under and new service provides appearing. Just look at the new transportation service Uber. Last week we heard that it is valued as much as $18 Billion dollars. Some cities are trying to block its success to protect traditional taxi and transportation service. There is a business model change happening in transportation business as well and new players will win in the end of the day as that is what the consumers are going to choose.

photo by: mediaexpression

Velocity of Business Models

velocity of business models

velocity of business modelsIt is amazing to see how the velocity of business models is changing the entire cloud landscape. I read  an InformationWeek article this morning about Gartner’s Magic Quadrant 2014 for cloud, its winners and losers and how for example Rackspace business model has change drastically the past year or so. Rackspace used to be the poster child in hosting and providing high value services, but now they are forced to look for new market segments besides the more traditional developer market that they have been aiming mostly according to the InformationWeek article.

The price decrease from larger players such as Microsoft, Amazon and many others have forced Rackspace’s of this world to look at their business model and try to figure out what to do to survive in the ever increasing competition.  It is not easy, no question about it. What is interesting to me at least from a research perspective is the speed of change that has definitely increased during the past years in software and IT business. If you look at service providers that used to manage internal IT infrastructure environments are now feeling the pressure of enterprises moving to the public cloud, whereby the service provider has to reinvent the business model as well.

Rackspace is not the only one that is feeling the pressure. According to the InformationWeek article, Dimension Data was in the Challenger Quadrant last year and has now been dropped to the Niche Player quadrant in the same way as Rackspace. WMware is listed as a Niche player this year, but Gartner cautions that they are offering services to managers that are responsible for virtualization and these managers are different from the business managers that want to build next generation solutions and these are typically the ones that will use public cloud such as Microsoft Azure. This is exactly what I have seen myself when working with both software vendors and enterprises. Enterprises especially were slow to move to Microsoft Azure, but that has really accelerated and even Gartner has noticed the rise of Microsoft Azure market share. This was also reported by Redmondmag where there are only two leaders in the Magic Quadrant, Amazon Web Services. and Microsoft. What is interesting in the new Magic Quadrant is that there are no challengers at all in the quadrant.

I think specialization is really what organizations such as Rackspace needs to do. All of my web-sites are based on WordPress and I have selected a hosting provider that is specialized in providing WordPress hosting only. WP Engine does WordPress only hosting and their site says exactly what I wanted “Hassle-Free WordPress Hosting“. What this means in real life is that they know WordPress inside out, they apply all of the WordPress fixes and monitor the security, take backups etc. Yes, all of this would be able to do on Microsoft Azure, but I would have to do it myself, but I am not in that business. I much rather have a premium hosting provider that I know is not all over the map and based on my experience, they really know what they are doing. I am running a solution on Microsoft Azure that integrates our Dynamics CRM 2013 Online and SharePoint 2013 Online and I will post another blog entry about this exciting integration case.

What is it that we should learn from this blog entry? The first learning is that nothing stays the same, even if you are a market leader or perceived as market leader. The second learning is that the change has definitely accelerated and this is causing bloodshed for the ones that have been resisting the change. The third and maybe the most positive thing is that the change is also creating new opportunities for entrepreneurs that identify gaps in the current offerings. We need to remember that business will continue, but maybe with new players. That is the name of the game.

photo by: jpctalbot

Business Modeling is a process and requires experience

Business Modeling is a process

Business Modeling is a processEverybody talks about business models and business modeling, but not many have been exposed to different types of scenarios and organizations when applying it. I learned today after having talked to a person that had used Business Model Canvas in the past and felt that the use was a bit messy.  I am not surprised about this experience at all. Using Business Model Canvas takes time to master and reading a $22 book does not make you a master. You have to go out there and test it out, make mistakes, learn to pros and cons and most importantly, learn that it is not about the tool/framework, it is about the people applying it and whenever there are people, there is a chance for confusion and disagreement.

I still remember vividly the day when I used Business Model Canvas the first time. I decided to try out Business Model Canvas on a company that wanted me to help with their product/solution business modeling. I must admit that I was a bit nervous as I did not know whether the Business Model Canvas would help me out to run the workshop.  I was also nervous to get too many questions of use cases in the Canvas use… I did not really have any… I did not even know if it would work…

I learned really quickly that the Business Model Canvas is just a tool and the entire business modeling excersise is based on human interaction and how to be able to extract and guide people to think about their business, how to get them to agree on things and how create an effective action plan. Business modeling is just the start of a journey that an organization has to commit to and also understand that there might be a need to pivot the business model every now and then when the market or other circumstances change. We are living in the era of agility and business models need to be agile as well.

Today, when I run workshops using Business Model Canvas, I put emphasis to the group chemistry to ensure that everybody in the group/teams are contributing the goals of the workshop. Specifically in smaller companies it is very common to have one or two very strong individuals that “take over” the discussion and this is why I usually want to divide the group into two or more teams to get more discussions among the participants.  It takes time to learn how a business modeling session process and to learn to read the group/teams when they get stuck or become frustrated.  If there are more than 6 people in the group, I typically want to divide the group into two teams of 3 people. The teams should be assembled in a way that people that interact less during regular work are put in the same group.

In some cases I have people in the group/teams that want to argue how to use the Business Model Canvas framework and the discussion becomes more academic. My recommendation is not to put too much time in learning in-an-outs of the framework, as each person has his/her subjective way to view it. It is enough if the entire group/teams agree a common set of rules.  A good example is the discussion if a key partner should be listed as channel or the other way around. It is enough as long as everybody agrees how it is defined. A key partner to me is an organization that you work with either long term or an organization that you need to deliver your solution to a given market segment.

In summary, a Business Model Canvas is just a framework that enables you to view your business, but the key is the process how you end up with your business model. It is also important that your facilitator knows how to deal with different types of situations when you have business owners and/or senior level executives defining the future of the company. It is very easy to get lost in the process and the day could lead to a situation where you loose face with your group/teams and the Business Model framework becomes something that nobody wants to hear about anymore.

 

Pricing alone does not make your business model

Most software vendors (ISVs) struggle how to price their solution, specifically when moving the cloud. Many vendors are trying to “retrofit” the current model to the new cloud model, but this just does not work. You just can’t make your pricing to reflect your current business model where everything is based on higher cost structure such as Cost of Customer Acquisition (CAC), cost of having a different operational model in your organization such as support, marketing etc.

When I look back at all of the workshops that I have done in the cloud transformation field, each and every ISV has had to recognize that something has to change in the model and we use the Business Model Canvas to do a simple “sanity check” what kind of things the organization has to change to be able to make this transition. I am not talking about organizations that are “born in the cloud” but  organizations that typically have a successful traditional software business with good but declining maintenance and support revenue. Many of these organizations are now forced to rethink their current business model as smaller and nimbler organizations are “eating their lunch”.

This does not impact only ISVs, but also Systems Integrators (SI) that are used to the “big ticket” development projects and many end user organizations are tired to the ongoing and inflexible “platform” that has been created. This comes back to my previous blogs where I recommend organizations to go to the roots and identify what is “good enough” as a solution for people to be able to manage their business without having to deal with monster projects.

In the end of the day, pricing is just one small piece of the overall puzzle and therefore it is easy to say that without value, people are not willing to pay and if you do not bring value, your overall business model will never work. The Business Model Canvas has 9 building blocks and if one of these building blocks equal zero or is dysfunctional (some are not needed like channel), then the entire business will fail sooner or later. Check out the Business Model Canvas Structure that has been defined by Dr. Osterwalder:

Business Model Canvas

I am a believer in value-based pricing with the recognition that there are competition out there that will eventually force you to evaluate the pricing levels. Just look what is happening with Amazon and Microsoft on the cloud infrastructure front. It is a bloody battle but this is of course great for the consumers and businesses as the cloud becomes even more affordable and non-brainer as development platform.

 

It is no longer about the cloud only, it is about innovation of new generation solutions

I feel a bit ashamed of not  having blogged for a while, even if there has been so many different things that I should have shared along the way. The first 6 months of 2013 has been an amazing time for me professionally. I believe in life-long learning and I hope to keep up with all of the changes going forward and I really do not have a choice as I teach and educate people around the world in the topics I am passionate about. What could be better than that? I have also had a chance to educate top-of-the-breed software professionals in business modeling and this has included reviews of tens of companies and tens of different business models. Needless to say that it has been a great experience and I will now try to get at least some of my learning’s to blog entries.

I have to say that I have been in a very fortunate position to be able to work with top-of-the-breed software organizations around the world. The work has been mainly in the cloud transformation and this of course has forced me to really dig in deep into different topics like channel alignment, pricing of solutions, sales compensation model for sales teams, app strategies and many other very interesting topics.  I also decided to build a Learning Management Solution (LMS) site that includes videos and content for our clients to learn and consume at their leisure. This site www.tellusacademy.com has become my passion as I really love to get people educated and when I see them becoming excited, that gives me this personal feeling of joy (I come from a teaching family…..).

When I look at the current global situation of cloud transformation, it is easy for me to say that we are no longer just about the cloud. It is more about transforming your solution to take advantage of different device form factors with the assumption that the cloud will be there. Looking back at our business design sessions, specifically then more non-traditional software vendors, I feel that it is more about solution innovation more than ever and the search of minimal viable product (MVP) that a software vendor is bringing to the marketplace.

I think the road to solution innovation will just continue going forward and this was very evident in the Microsoft Worldwide Conference 2013 (#WPC13) in Houston a week ago when I listened to Microsoft General Manager Barb Edson and Technical Sales Program Manager Jeff Wettlaufer (excellent speech) speak about “Intelligent Systems” which is really about how Windows can be embedded to different types of environments and the speech showed an example of how a retailer can use Microsoft technology in showrooms. I am really happy that Karen Roberts (partner strategy) asked me to join the session as it was a perfect fit where we see the market going and software development overall. I would encourage you to check this out what the Windows Embedded division has to offer for partners. There are quite a few amazing examples of what can be done in different verticals.

I will drill down into a few interesting topics in upcoming blog entries and what I would like you to remember is that it really isn’t about the cloud anymore, it is about how to deliver simple, user-friendly solution experiences for people to consume and this of course using different types of devices. If you are not on this road already, you might be too late in the game and you will soon have the competition to eat you lunch.

Stay tuned for more…

Software vendor: Have you even had the problem of discontinuing a software solution?

There has been an outcry the last few days due to the decision of Google to drop its Google Reader application. Jim Aley concludes in his article that life will continue even without Google Reader, but it is painful to a lot of people that have relied on the service. Google has announced that Google Reader will not be available after July 1, 2013. Reading this annoucement, I reflected a bit on what I have seen during my career in respect to discontinued software solutions and issues around that decision.

What Google did is something that we all have probably run into in some shape or form. I used to run software product development teams earlier in my career and have had to “kill” products due to different reasons; some of them being based on economics and some of them purely on the change in competition and changes in strategy. I have also been consulting software companies that have killed products along the way because they company has had to change direction of their strategy.

When I see companies grown their operations, I have also seen a tendency to increase the complexity of the solution portfolio which typically leads to complexity in the entire operations. Suddenly your operation has become more complex from support and delivery perspective, your channel partners do not understand what you are trying to accomplish and your sales is scratching its head to figure out how to position the solution as there are so many moving parts.

Looking back at my career, I can say that I am guilty of this as well so I have experienced it first hand and have had to do difficult decisions along the way. Just the fact that the software vendor has to inform the customer that something that they use on a daily basis does not get enhanced anymore can be very difficult to message to a customer. How do you inform this kind of decision to an end user customer without getting a blooded nose?

When I select software solutions, I typically also consider the strength of the software vendor whether I will be investing my resources and future into it. There has been a few times during my career when I have “seen the signs” of weakening of a software vendor and then made a decision to transform my operations to something else. I am sure this will be the case also in the future. This is extremely true specifically in the cloud space as the investment to start a cloud business is almost zero (if not considering the labor) from infrastructure perspective so anybody can now come with an idea but for the business to be sustainable, it is another story altogether.

What do we learn from the Google Reader case? In my opinion, we can easily say that even large companies with loads of money will make decisions that can hurt the client base even if it is a non-paid solution. Secondly, I think we need to learn to understand that nothing exists for ever and if you select a solution for your operation, you better analyze the vendor first to see if they are for real or just a hobbyist organization.

ISV wakeup call: Cloud and mobility will surge in 2012 according to IDC

I run a seminar in Finland at Microsoft Finland office 23rd of November for Microsoft ISVs about the transition to the cloud and what it means for software vendors overall. One of the key things in my messaging for ISVs is that they have to look at the cloud together with mobility going forward. This morning I run into an article in Information Management web-site where IDC predicts that mobility and cloud will surge in 2012.

It is easy to agree to this based on what we have seen in our work and research specifically in the US continent. IDC predictions are based on 1000 IDC analysts and according to this study, cloud spending will top $36 billion next year which is four-times the overall IT industry rate of growth.

Another interesting statement from IDC chief analyst Frank Gens is that there will be a “generational shift in the tech platform adoption and innovation” which could according to him lead to a worldwide IT spending of $5 trillion by 2020 and all of this based on mobile tech and the cloud.

Based on hundreds of discussions with independent software vendors (ISVs) around the world we have seen a clear shift in the urgency of many ISVs to ensure that they are on the right bandwagon concerning the cloud. My colleague, Juha Harkonen has been analyzing the trends for quite a while and the observations that he has made are very interesting. You might want to check some of his observations from his excellent blog.

 

 

 

SaaS companies are better valued when compared with traditional software companies according to latest research

Now it is in the open. According to a recent article from Gigaom.com and research from Martin Wolf M&A Advisors, SaaS companies are getting much higher valuation when compared with legacy software vendors. The chart from Wolf M&A Advisors tells it all:

I knew we would get to this sooner or later as the move is definitely towards the cloud and ISVs that are resisting this move, will eventually run into issues if they do not re-architect their legacy solution as clients will require a true SaaS solution and not a solution that is “running in the cloud” but without really taking advantage of things such as scalability etc.

The Gigacom.com article concludes that it is not a surprise that enterprise vendors acquire smaller SaaS players such as the acquisition of RightNow Technologies by Oracle (1.5 billion). I work with ISVs around the world and I have seen many different types of organizations, some of them being start-ups and some making the transition from legacy business to SaaS business. One very popular way for traditional ISVs to make inroads to SaaS game is to build some type of an extension to the legacy solution to get experience what it is to build for the cloud and this also gives a more evolutionary way of creating something that can be sold to existing customers as add-on service.

I think each and every software executive should contemplate on the message from Gigaom and Martin Wolf especially if the company is in the game of getting sold in the future. The times of high license revenue with maintenance and support is gone and will be sooner or later replaced by monthly/quarterly recurring revenue where the software vendor has to create a solution that is not only used but loved by its users. Gone are the times where a software was sold that was both unfriendly to use but as the software vendor got its money, there was no incentive (other than getting the annual maintenance and support fee paid after first year) to ensure that the software was something that the buyer really liked. In the old-fashioned model, the company paid a large lump sum for the software and this was almost always a lock-in from the software vendor as the end user organization is always fully invested in the solution and is almost forced to pay the maintenance fee in the end. I do remember vividly when I was CEO for a business intelligence company when I was always worried whether our largest clients would pay the support/maintenance fee in the beginning of each year.

 

A tale of “me too” kind of innovation: RIM to launch music service for BlackBerry

It is sad to read about Research in Motion (RIM) attempt to become hip again. I have been a client for RIM for the past few years for one reason: AT&T provides me with an unlimited data plan (worldwide) and that is hard to beat. I have not been able to switch to any other phones as I really need my phone when globetrotting and I am reluctant to spend hundreds of dollars each month for roaming.

As a Blackberry user, I would have appreciated RIM to focus on getting a real phone on the market that is competitive and I can still keep my unlimited data plan but I guess nothing lasts forever and I need to move on and change to a new operating system and vendor and deal with the roaming. I can’t be left behind in innovation and usability and when you look at the current smart phone market, it is growing and advancing with huge steps every month. My current phone (BlackBerry Torch) has a lackluster touch screen that does not react to my fingers the way one would expect. I have also had to rebuild the phone at least 10 times from scratch due to applications that have broken the phone. One would think that cannot be possible, but it is and I have seen it many times. I even had to buy a software tool to “self-manage” the rebuilding as AT&T refuses to rebuild the phone and forces you to buy the phone again if the warranty is over. Not something I enjoy doing. Once returning from Europe I put my phone on and it went dead and by discussing with AT&T service they said to buy it again.

The latest attempt from RIM was to publish BBM Music store that enables BlackBerry users to stream 50 songs using BlackBerry Messenger. Why on earth would I want to do that and wasn’t this something that Nokia already failed in and decided to kill? If I were RIM, I would focus purely on getting new phones on the market and focusing on the youth as they are the ones that either make the platform or break it. Another group are the developers that now are at crossroads as they have to decide what to do to a dying operating system as RIM is moving to the new QNX operating system that they acquired by RIM.

My personal opinion is that RIM needs to focus on having applications that support music services such as Spotify, Rhapsody etc. and forget about things that are outside their own core competence areas. This tale is also something that the software/IT industry keeps seeing all over again: once you are the top dog, you will eventually come down due to many reasons. We have seen this happen with IBM, Nokia and many other players. We need to remember to reinvent ourselves on regular basis and keep working in a humble way. Becoming arrogant and believing in something that is not true anymore can be lethal in the long run. When somebody becomes market leader, it always causes people/employees to think that this stays status quo even in the future. This never happens.

Where does this leave me as a smart phone user? In my mind there are only three players left in the smart phone field: Windows Phone 7 from Microsoft, Android from Google and iPhone from Apple. With these three choices the follow-up decision is to select the hardware manufacturer and that is where the race is going on with Nokia, HTC, Samsung, Dell etc. on the WP7 field and obviously the same thing with Google Android devices but with iPhone with only one manufacturer being Apple.

Cloud ISV: What technology will you be using when supporting different mobile and tablet devices?

I explained in my previous blog post that the cloud era is here to stay and with this new era, there are also quite a few technologies that the ISV has to select to build a solution. One key thing is to select the cloud platform but an increasingly important technology that the ISV has to evaluate is what development environment to use to support hundreds of different mobility devices, both smart phones as well as tablets.

When I look back not more than five years, the requirements for applications were much different that today when it comes to consuming information. Today, the end user expects to be able to use a smart phone and tablet to view/update information using a solution that typically is built on cloud technology. Flash used to be the main technology to build applications for the Internet browser, but with the decision that Steve Jobs and Apple did on Flash of not supporting Flash on Apple iPad, the success of Flash is doubtful in the future. Consumers do not care about technology, they care about having the ability to consume information and this is something that the technology industry forgets every now and then. If somebody has any doubts about this, just look at what is happening on the US markets and what has happened for example for RIM and BlackBerry market share on smartphones. It is brutal.

Back in 2010, there were quite a few articles of whether HTML5 will kill Flash. There are millions of Flash web sites whereby I do not think Flash will go away anytime soon, but the real question is whether the ISV should believe that Flash is going to survive going forward. My personal opinion is that I would not invest time and money to Flash anymore as we all know it is not going to support all of the relevant mobility interfaces and I do not think that for example RIMs approach by marketing its BlackBerry PlayBook to support Flash makes a difference in the large scheme of things. The question that each ISV needs to evaluate is what technology it expects to support from a long-term application development perspective.

We already know by now, that Flash will not survive in the long run and has already become a major limitation for many ISVs. When you really think about it, users have already won the battle by ignoring the Flash and showing this by buying iPads even if they know it won’t support Flash. Can you afford building sites and ignore the millions information consumers? I do not think so. Many entrepreneurs (me included) have made the decision not to allow any Flash technology  to be used on the web-site as most smart phones and tablets do not support Flash and Flash not optimized either from SEO and SEM perspective. Check your web site analytics/statistics and you will find out that smart phones and tablets are becoming more relevant in information consumption.

I believe that the next wave of innovation will be coming from software vendors that are able to combine the cloud and mobility in a way that helps end user organizations to become more effective and productive in whatever the application area happens to be. I read an interesting article “Building An Enterprise Software Company That Doesn’t Suck” where the author described how large enterprise software packages are losing the appeal from both end user organizations as well as users. People are sick and tired of complicated and hard-to-use software solutions that do not bring any value add to a user’s daily life. Organizations have forced users to use software to fulfill some type of compliance rule but I my bet is that with the new generation of users, this will change whether organizations want it or not. The new generation entering the marketplace is fluent mobility users, they use social networks as we used to use the regular phone and they would not care less about the corporate compliance stuff and based on research, they won’t even apply to organizations that are old-fashioned way of viewing the world.

Technology selections for an ISV business is always tricky and I have had to do this many time during my career and I have also had a few misses such as selecting an application development tool from Synon (acquired by CA) called Obsydian that never really took off in the marketplace and my developers were never really able to use it effectively. The same applies to the selection today in respect to mobility development. Can you afford making a mistake, spend money in development and then suddenly realize that something else should have been used. I do not think so.

I recently read an interesting article “Seven Reasons HTML5 is Killing Flash” with some interesting points of why HTML 5 could potentially kill flash. According to the article, there are more than 109 million mobile users with HTML-5 ready browsers, but by 2016 the estimate according to ABI Research is that there will be more than 2.1 billion mobile users with compatible browsers. According to ABI Research, there will be 25 key features that will make HTML 5 competitive and the seven that was picked in the article are as follows:

1)      Video Play: HTML5 includes a tag for videos that allows it to play with the start, stop, pause etc.

2)      Video Record: This will become even more important going forward as mobile phones have video recording and HTML5 will support this

3)      Audio Play/Record: Today, the user needs, Flash, QuickTime or Java to play or record audio, but with HTML5 it is just another tag.

4)      Apps: HTML5 allows Web pages to access the same routines that make browsers work and enables them to become like any application. I think this is one of the key things when you think about mobile application development using HTML5

5)      Rich 2D Graphics: All types of sophisticated two-dimensional graphics will be built into HTML5

6)      IM: Instant messaging will be built into HTML5 by virtue of Web sockets

7)      Real-time Streams: Web sockets will also allow any Web-page designer to easily add real-time data streams to the application.

HTML5 could become the best friend for the ISVs going forward as it will provide the broadest support from a device/browser perspective and when smart phones will get HTML5 compliant Internet browsers. HTML provides a better way to support multiple devices as is explained in the article “Enterprise App Stores Harness HTML5” by Colin Johnson.