The Platform Business Model and Moving from Products Sales to Services Offering
Over the past 1.5 decades we have witnessed the rapid growth of the recent paradigm in customer engagement through allowing them to pay for what they use, instead of forcing them to buy a product and incurring large capital investments.
This benefit realization has been on the rise among all sizes of businesses, even with those already in possession of several data centers across the globe, allowing them to start their departure from their aging infrastructure without having to continuously purchase and provision new hardware.
The concept of Software-As-A-Service (SaaS) existed before that, and some enterprises were providing subscriber services even before internet was in its high-speed and high-bandwidth state of today, but the world was not ready to fully embrace the concept of pay-as-you-go business model and as a result, selling the products – or selling licenses to use the products – were the dominant form of digital sales.
The long pandemic period and the supply chain disruption that followed, made it more relevant and economically sound to adopt consumption-based service models to allow for immediate provisioning of services and to have the ability to scale as needed - as the demand would fluctuate or simply grow – over time. Public cloud service providers boosted this concept by providing virtually unlimited pools of resources to use and pay based on usage.
As attractive and logical it is, the adoption of a service oriented business model is a major transformation would need to go beyond a change in strategy all the way through adopting a new mindset about the sales function of the organization.
This would require a vital change in how the salespeople need to engage with customers in both before and after the sale, as the old model of closing the deal and transferring the job to the shipment and delivery and customer support is now turning into a continuous sale intertwined with the former post-sales activities.
Customer Re-classification
When it comes to service provisioning, we can no longer rely on the number of employees and the size of the commercial real-estate of the customer to best-guess their upcoming value for our pay-as-you-go business model.
There are many existing and rising organizations with low number of staff and small commercial footprint using public cloud to run globally hyper-growing businesses which can become our best customers.
That means the metrics that the product sales business model used are no longer valid in a service oriented business model, and that is not just in identifying customers, but also on how to get the salespeople engaged and motivated, now that they no longer get their commission after closing a sales but through continuum of the service usage by the customer they closed.
Sales Model Re-Structuring
The Service provisioning model requires a new way of marketing and sale as well. Not so long ago the salespeople had perfected the concepts of lead generation, sales funnels, conversion rates and relied heavily on product demos and signing contracts on capital sales.
In this new model the closing is just a middle stage of customer engagement as the real revenue will be generated when the customer of our consumption-based business model keeps using it in an accelerated growth, for as long as we can provide it.
This requires the sales relationship with the customer to evolve into a consultancy and coaching throughout the business engagement to help them succeed in their business by using more and more of our services.
Salespeople are now required to raise their technical abilities and diversity their skills from traditional sales and marketing into deep understanding of the services that are being sold and how they can address customers painpoints and help them expand their business. They need to become “Success Agents” for the customers in optimizing their consumption and maximizing their ROI out of that.
The old saying: “Salesmanship starts when the customer says No!” is now changing into “Salesmanship starts when the customer decides to try our services and it never ends!”.
The salespeople are now at the front and center of the relationship with the customers who have already signed with us and need to observe, gather feedback and insights and partner with the technology teams to continuously improve the services in live alignment with what the customers need and are asking for in response to the market changes in the current volatile landscape.
To transform and support the sales team for that mandate, we need to address the existing cultural and habitual impediments that would have developed strong roots in the organization. We also need to train and coach the team into adopting the new mindset and using their learned skills in the new model.
Their compensation needs to be supportive of the new paradigm and align their efforts with the organization’s strategic plans. Hiring fresh talent is a good idea to augment the existing and evolving sales team.
If we are bringing the technical staff into the sales team, we should also train them in customer relationship management and coach them in developing their emotional intelligence.
Cultural Leadership Changes
The cultural resistance that we can expect in an organization that is shifting from products sales to a service consumption business model can manifest at all levels of the org chart.
People are generally resistant to changes that would question the relevance and value of their well developed skills and years of experience, but in today’s quickly changing market landscape there is no future without flexibility in adopting new ways and learning new skills.
Salespeople are pushed to break through their comfort zones towards a new culture of continuous learning in alignment with the new business model. You need to form a coherent, grow-minded and learning sales team composed of your staff and in this implementation may end up having to let go those who would not or cannot change their mindset or ways.
Management of all levels in the organization – especially the executives – would create another level of push back when they see technical people are promoted to the higher leadership roles than ever before so the business model can benefit from their technical strengths in collaboration with business leadership. This impediment needs to be broken apart through training and direct support from the highest executive levels in the organization. Your CXO need to show adaptability and willingness to learn and improve or they will become the holes in your boat and sink it to the bottom of the sea.
Upgrading Services into Platforms
Now that we you have established the value of shifting from Products to Services and running a consumption-based customer engagement model, the next step forward would be finding way to turn your services into platforms that can help your commercial customers succeed in selling their own services to their customers, alongside your service provisioning to your own personal customers.
This will take the concept of salespeople becoming “Success Agent” to a new level as the focus will now deepen into “consulting the commercial customers in helping their own customers succeed in using their services”. This would amplify the revenue from a simple consumption-based model through the network effect cascading down to the real end-users of the services.
We have seen how some of the platform service providers have outgrown the largest service sellers in their market sectors (one example would be Airbnb and the fact that its value have exceeded even the largest hotels chains in the world).
The platform business model – which is a special version of the consumption based model – is not a one-size-fits-all approach and every business need to do a through analysis of their customer base and their services and experiment and figure out what part of their services can be transformed into which kind of platform.
To upgrade the service model to a platform, extensive due diligence is required to not only identify the opportunities but to also clarify the required resources and relationships (with the businesses that will run on our platform) and the risks and challenges of doing so.
Partnering with your Customers
When you have a large customer base on a service that is expandable into a new relationship between your organization and commercial customers, you have a great opportunity to expand and deepen your revenue channels through a variety of partnership models with them.
This partnership can be one-sides (expanding your access into their customer base or their access to yours) or mutual (gaining access to their customers and providing them with access to your customers).
For this approach to be feasible and sustainable, the two sides of this partnership need to be in a complementary / supplementary position against each other.
Your organization may provide a certain range of services which can benefit from adding some 3rd party services to your offering which are considered useful to your customers and are not economically viable for your organization to provide them on your own. This may be due to the proprietary nature of the added services from the 3rd party or the higher cost effectiveness of their operations.
Your organization may create APIs (Application Programming Interface) to allow the 3rd parties to develop their services using your core functionality as additional features that you can market to your customer base (like the QuickBooks which is now a SaaS product with APIs available to 3rd parties who want to create add-ons and plug-ins and supplementary services for customer using the SaaS service.)
Another example would be Amazon Web Services (AWS) that provides a vast and comprehensive public cloud service on a consumption-based model and also runs a marketplace were 3rd parties can sell their services and solutions that are based on AWS platform and extension of some AWS services.
Apple is an example of a platform service that allows 3rd parties to create and provide their mobile apps on App Store, providing a complementary set of services that would enrich customers’ experience using Apple products.
Some organizations may decide to completely replace some of their existing services with what the 3rd parties can provide due to their higher success rate in the market and popularity.
It is important to note that your customers are trusting the 3rd parties’ supplementary products based on your reputation and existing relationship they have with you. To safeguard and maintain that, special governance and quality control, and scrutiny must be put in place to ensure the quality and relevancy of the 3rd party services and security of your customers’ data when using them.
You should also be on constant watch to ensure the 3rd party services stay within the complementary range of yours and not competing with them, causing conflict and cracking into your market share.
Other sensitive aspects to consider is how to manage the user experience and communication between the 3rd parties and your customer base in an ever improving manner to avoid any backlashes from their exposure to unrelated or unsolicited marketing attempts by the 3rd parties (or worse, their affiliations who are not even in a working partnership with your organization).
The platform model is a great approach in turning new market entrants that would grow to become competitors into coopetitors (aka co-competitors) from an early stage when your analysis shows good potentials in collaborating with them.
Then again, as is the case with any partnership, there is a number of risks and pitfalls that you would need to track and mitigate as needed. One of which would be the chance that the relationship would not bring any revenue for your organization and a 3rd party’s complementary service fails to attract enough customers to make it profitable.
You may be partnering with a larger organization as their provider of the complementary service and end up having your successful idea copied by them and added to their baseline and leaving you out. These cases may turn into a settlement or become long and messy court battles with a variety of outcomes.
We have seen how Amazon has a repeated tendency of copying the successful ideas of smaller businesses selling products on their platform and has provided a similar range of products in direct competition of these smaller businesses.
Amazon Web Services entered the 5G market by providing their own 5G appliances and field equipment and cloud integration, posing as a direct competitor to the telecom companies that were relying on AWS to facilitate their 5G data communication needs to the cloud.
Regardless of the side of the relationship your organization is positioned at, reaching out to your partner’s customers is a very sensitive move and needs to be transparent, mutually agreed and well managed to avoid any discomfort or panic by the other side.
Conclusion
The consumption-based service provision is winning the market over in all applicable and many innovative areas. Partnership with potential competitors into coopetition required strong due diligence and proper planning and structuring of relationships.
Sharing control is always a challenge and needs to be well structured and planned and legally transparent and clear to foster a long-term, mutually beneficial relationship between the two side of the partnership. If you decide that creating a platform will provide great opportunities for your business growth and increased profitability and to stay competitive and relevant in the market, the effort to make the transformation would prove vital and valuable for your organizational growth.
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