Tag Archives: Operations research

Consumption Economics: Revolution or Indigestion?

At Technology Services Europe earlier this month, (Berlin Hilton, 15/16 March), JB Wood and Thomas Lah, two of the authors of “Consumption Economics“, delivered a thought-provoking and even troubling message.

The problem (if there is one) is that the services division of majorenterprise technology companies is a cash-cow, supporting product divisions that are in a spiral of narrowing margins and increased features as they strive to maintain/gain market position and defend against competitors. So products are weak and services, aimed at helping companies use the products they purchased, become the lifeblood of the company.

What’s wrong with this? Absolutely nothing, except that there’s a new kid on the block which is threatening the status quo. I’ll describe the before and after as well as I can.

BeforeEnterprise Technology Purchase Pattern

Your company buys the product and pays for professional services to help configure it for use. You also contract to pay maintenance fees for, say, the next four years so that help is on hand. You then start to push it out in the organisation. So far, so good, except that you have paid out the money and have lots of work to do to establish usage, probably finding out that a lot of development works needs to be done to make it do what the business needs. The authors created the first diagram showing how it works.

After

What’s now emerging is a new way, based on consumption. The upfront investment, if any, will buy hardware but, instead of buying software licences, and professional services, and maintainance, the company now pays as users consume the product features – like a pay-per-click, or downloading an app or plugin from a marketplace. In this case, the income isn’t heavily front loaded (diagram above) but is heavily backended (diagram below, from the authors) and is the result of vendor effort to develop consumption within the client company.

OpEx Cloud Purchase PatternOutcome

Many technology vendors will remodel themselves over the coming years as buyers become accustomed to paying in this way. One key feature of that remodelling will be seen in the contact centre where technical agents and customer service representatives must have new skills because their interaction with the user will go beyond providing help. Agents will handle product configurations and conflicts as before, but must also understand the user’s business so that they can recommend features, addons and plugins that are relevant, valuable and useful to users, thereby improving user effectiveness/productivity and vendor revenue at the same time.

I’m particularly interested because this shifts focus from technical support being a pure cost to the business (therefore, to be minimised) to it being a vital revenue-generating activity. This requires more than just a quick training session with current agents. It requires a new approach. Selecting and skilling agents to manage relationships, identify revenue opportunities, make an appropriate offer, and give technical help. All in one person. This is not impossible and can be achieved through making careful team selection, focused coaching, and appropriate metrics. I’ll be speaking about this at TSW Silicon Valley in May. Please join!

Is your business already changing to the consumption revenue model? Or not yet seeing the need for change? Or is consumption economics like indigestion – something that will pass?