Balance of Power in Software Realm Shifts from Vendors to Users, PwC Finds

Don Tennant
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For far too long, software vendors have been in the software-sales driver’s seat, dictating the terms of licensing agreements with a take-it-or-leave-it arrogance that has forced customers to choose between acquiescence and an operational handicap. But according to the findings of a study released earlier this month by consulting services provider PwC, it’s now the software vendors who have to make a choice: Meet the customer’s demands or watch the sale go elsewhere.

The study, “Experience Radar 2013: Lessons from the U.S. Enterprise Software Industry,” highlights a dramatic shift in the software sales landscape, as the consumerization of IT, accompanied by the convergence of such forces as cloud and mobile computing, has empowered users and forced vendors to rethink their sales strategies.

I had the opportunity to discuss all of this last week with Patrick Pugh, PwC’s U.S software and Internet leader, and Shaivali Shah, customer experience specialist and  Experience Radar solution leader at PwC. I began the conversation by asking them to what extent end users are driving the adoption of particular software technologies in their companies, and how software vendors are responding to that phenomenon. Pugh cited the ripple effect of the consumerization of IT:

The Bring Your Own Device concept has latched on, and is a reality now. So as we look at the shifting role of the consumer—and this would also include the employees—and the shifting role of IT, of how it now has to work with its constituents, its stakeholders in the businesses, it is a viable force in the entire transformation of software, devices, technology, etc. As you trickle down into the implications of this, another thing we found in the report is being on every platform, every device, every option that’s out there, is not necessarily the wisest and safest decision [for a software vendor]. It’s making sure as a company that’s developing the applications and the software that you’re very deliberate in where you want to play, and how you want to deliver that experience. Because yes, there is a major expectation around multi-platform, etc., but what’s equally important are the facts around reliability. There is a performance expectation that’s out there, too. So being on everything is something that needs to be considered, but really making sure that you can deliver a good, reliable experience is equally important in the decisions of going multi-platform, multi-device.

Shah added that the demand for portability is being driven by the expectations of end users:

One thing we did see in the study, especially with multi-device access, was portability—I want to be able to work and play where I am. Three out of five people absolutely want to have this, and they actually, especially in large enterprises, are willing to pay double the amount for this type of portability so their employees can have that flexibility.

I asked whether software vendors are beginning to direct their sales and marketing efforts at end users. Pugh said the answer is yes, but the methods and velocity with which they’re doing it varies.


Software sales are historically a very relationship-driven business. For many of the established, longer-term software players, these relationships are deep with IT. As we saw through this radar analysis, and through conversations and such, she shift is happening. It is taking some time for software companies to transform their sales groups to expand relationships and change the value propositions and the conversations they’re having. But the answer is yes. In many ways, some of the newer, less-established software companies have advantages in not having to transform long, legacy sales practices. So they’re able to build to the new world of multi buyers, multi stakeholders, whereas many of the more traditional, longer-term software players are going through a transformation exercise.

Shah noted that software vendors need to be aware that what users are looking for varies by customer segment:

For example, what we saw in very large, multinational enterprises is they value involvement with the vendor early on to help them develop the business case for the investment, and to have them involved throughout the process. So it’s not just the purchase, it’s across the lifecycle. … What we found when we asked SMBs where they envision their model to be in the future—the traditional model or the cloud—five times more SMBs than larger enterprises said they were going to look towards a purely cloud-based model. So we’re seeing a shift [towards cloud] overall, but particularly among SMBs, because they don’t have the legacy systems adding that weight.

Pugh said that what’s common to every customer segment is the critical nature of some element of engagement and relationship:

Software vendors’ ability to have relationships with their customers in one form or another, to one degree or another, is going to continue to be critical, if not more critical, going forward as the need to be more agile, more tailored, more specific to the problems at any given company, are being addressed through software. … When you look at the different segments and their propensity to either share their experience [with other potential customers of the software vendor] or contain it, many in the SMB segment are willing to share their experiences. So it has that ripple effect of the promoter or detractor role these companies may play.

The PwC study also found that the enormous margins that software vendors have enjoyed in the past are history. Pugh explained the shift that’s causing that:

The really big shift that is a larger industry trend is leaving the traditional volume licensing environments to more of the service and subscription-based world. So when you start to think about margin erosion, cloud [and related technologies] have a different margin profile than your traditional software purchases—the enterprise agreements, the long-term licensing agreements and such that were structured. So as you start to get to more of the subscription-based world, and customers have more choice as to whether they want to go with more of a cloud-based offering or a traditional, legacy ERP system, there’s such a wide variety of choice now that the customers are no longer really locked in, or aligned to a few limited players. The cost profile of the subscription model is so different, margins have just gotten much tighter. There are benefits from the perspective of delivery to the consumer, but there is a financial implication to the software providers.

All of that said, Pugh noted that a lot more goes into the buying decision than just pricing:

Yes, pricing is always going to be a factor in decision-making, but in looking at what customers really value, there are elements around serviceability, around the support aspect. There’s a number of other drivers that are out there that, if done well, make pricing less of a factor. There is pricing pressure—I don’t want to discount that—but there are ways to mitigate it to where [software vendors are] not going to completely erode [their] pricing, and just have it be a pricing discussion.

Shah pointed out that, in fact, bad service is more of a relationship-killer than a price hike:

What we found is that if you have unreliable service from the vendor—and that could be anything from the software performing poorly, or a lack of updates, or just not calling back—we found that drives people away two times more than price increases. … Looking at issue resolution in particular, one interesting thing we found is that there is a very short runway for getting things fixed. Every minute that goes by means thousands of dollars are at stake. Eighty-five percent of people said they want their issue resolved in one day.



Add Comment      Leave a comment on this blog post
Apr 30, 2013 9:26 AM Debora McLaughlin Debora McLaughlin  says:
Interesting study Don. I worked in IT sales in NYC and Boston in software, hardware, telecommunications, finally landing at Sprint Corporation. Selling technology solutions is all about the end user. I learned early on, especially in the competitive NYC marketplace that in order to be successful my conversations weren’t about features and benefits of technology but how technology would help the end game, getting processes down quicker, winning more clients for the customer, positioning in their industry and if they were able to get home in time for their son’s lacrosse game. Using the skills of customer focus versus “look at me with the latest technology” resulted in being recognized nationally as top national sales performer and National Account Manager, but more importantly built long term relationships with my clients so I could help them to build the business case for technology solutions while in the investment process. Now I work with organizations and clients to help them to do the same, win the game by focusing on the players. Reply

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