Putting Wind in Your Sales in the Era of Consumption

The impact of consumption economics on service providers' businesses shouldn't be underestimated.

With consumption-based ICT models moving front and centre, technology companies' sales contracts and processes need to keep pace. They've built their businesses on a B2B model, but increasingly theirs will become a B2C game. Rather than the traditional RFP, budgets and proposals process, they'll need to focus on winning over consumers and getting them to recommend their services to others - almost like selling with Facebook. In a world of consumption-based IT services and microtransactions, when users sign up for your services they're only prospects - not yet clients. But a user who's currently using USD 100 per year could potentially turn into a USD 100,000 a month client ... if they like your product and you successfully cultivate their interest in buying additional features and services.

Technology companies can learn from the early days of the mobile phone when operators would litter sporting events with SIM cards. They knew that perhaps only 20% of visitors would go home and activate their cards and of those maybe 10% would continue to subscribe to the service ... but collectively, these individuals could move the needle in terms of the number of voice minutes sold over the next few months. Technology companies need to refocus their marketing efforts using similar tactics: raising their visibility at trade shows and industry events, giving every attendee a small, preloaded token to experience their service, offering clients a bonus or perk as thanks for referring others, or giving them a one-time discount for each new client they refer.

First-time, cloud-based sales should be 'frictionless'

As the risk shifts from the buyer to the seller, technology companies need to deliver the services that clients want, and do so in a simple, seamless way that makes it as easy and fast as possible for clients to purchase exactly what they're looking for.

A 'frictionless' cloud sales model − in which clients have no interaction with sales teams during procurement − fosters an atmosphere for fast growth, offering first-time buyers the ability to serve themselves immediately. Because no input from sales representatives is needed, an unlimited number of customers can be served without a corresponding increase in sales costs. With low price tags (a result of eliminating long-term contracts) and a frictionless sales environment, buyers can make decisions immediately rather than endure a multi-day, -week or -month sales process.

This isn't to say that sales teams no longer have a role. In parallel to facilitating a frictionless first-time sales process, they'll need to actively sell their organisation's cloud platform to existing clients and identified new prospects ... and drive consumption of services on that platform. Once clients start testing workloads in the cloud, they're likely to look for ways to more fully realise the benefits of a cloud environment throughout their organisation. This is where client managers become more critical than ever. Client managers have a deep understanding of their clients, their clients' industries, culture and strategic direction of the business. In the new model, they'll play an integral role in counselling clients on how to maximise their use of cloud services and how to utilise automation and other tools that will create greater cost and time savings for them, as well as help them scale over time.

So the role of client managers during this transition doesn't really change that much. What must change significantly is the way they're incentivised, measured and paid. You can motivate them to win the platform battle. But how do you remunerate them when there's no guaranteed revenue stream attached to their platform win? Will they be paid only as the revenue starts flowing? Technology companies have a great deal of thinking to do, particularly given that we're still in a period of transition - it's not a case of simply flicking a switch to the new model. The organisations that succeed will be the ones that start early, evolving their sales organisations while continuing to nurture the skills they currently have.

The shift to a consumption-based model also affects other areas of providers' businesses. Marketing must become much more closely aligned with sales and pipeline generation and acceleration, moving from being an operating expense to a cost of sales. Then there's finance and accounting: a services-based consumption model fundamentally affects the way you think about margins. Depreciation also becomes a much larger cost. Developing metrics and measuring profitability are very different when you move from selling pure products to a services model.

Value drives consumption

The ability to demonstrate value takes on a new significance for sellers in this new model. To ensure that consumption remains high, they need to understand what users want, and adapt their products and services to ensure they deliver that value.

To win in a consumption-based world, technology companies will need to hire new resources who can focus on processing data to obtain better insights about their customers and end users. We're moving beyond the era where vendors had little interest in or means to monitor what individuals were doing with their products and the only way to garner feedback was through client satisfaction surveys or consulting engagements. Delivering services to your users via the cloud makes it possible for you to track their usage. You need people who are dedicated to analysing the new information to which you now have access. What are the most popular features? Where are users experiencing difficultly? What new areas should you consider extending into?

By analysing user behaviour and trends and adjusting product features and services accordingly, providers can become more responsive, drive up the volume of customer microtransactions, and improve their service levels. The good news for buyers of IT services is that the result of this risk shift will be a new dawn of service improvements that they've been longing for in so many areas for so long. In a world where you're only as good as your service, providers have no choice but to step up their game.

Time to move

Technology companies need to realise that they ignore this shift at their own peril ... the way Kodak did: even though the company owned the original patents for the digital camera it ignored the transition to digital, continuing to try to squeeze as much money out of its 35mm film business until it finally went bankrupt. Neither should technology companies be lulled into thinking this shift is going to take a long time to impact their businesses. The tipping point could come quite soon: the point at which the majority of their established client base is no longer prepared to consume technology in the traditional manner. Right now, many technology companies are factoring in billions of dollars of product transactions over the next few years ... many of which may not materialise. It's only business as usual as long as your clients are consuming in a business-as-usual manner.

Success calls for something of a balancing act: technology companies need to continue selling their existing products in the short term, but they also need to find ways to channel enough of their oftentimes-slim margins into preparing for the inevitable transition, empowering and upskilling their salespeople and relooking their marketing efforts. Those who assess their risks carefully and make the right moves early will avoid being caught in the crosshairs like so many other businesses that became casualties of a consumption revolution within their industries.

Sales segmentation and appetite for risk

Risk is the biggest barrier to successful cloud sales. For this reason, technology companies need to understand their clients and prioritise their sales efforts.

By the Numbers

In 2011, Apple approved its 500,000th application. Today, the average application price is USD 3.64 and 37% of its applications are free. In 2013, the company announced that over 40 billion applications have been downloaded from its App Store.

The iTunes Store has been the biggest music vendor in the world since February 2010. It offers over 26 million songs, videos, e-books and apps for sale online. The iTunes Store's revenue in the first quarter of 2011 totalled nearly USD 1.4 billion; by February 6, 2013, the store had sold 25 billion songs worldwide.

Spotify is a commercial music-streaming service providing content from record labels including Sony, EMI, Warner Music Group and Universal. By March 2013, Spotify had grown to six million paying customers globally and 24 million total active users. Spotify principally operates under a so-called 'freemium' model: basic services are free and more advanced or additional features are offered at a premium. As of 2013 Spotify offered a USD 10 per month unlimited subscription.

Riot Games has created a free-to-play game operating under the microtransaction business model. Regular and exclusive content is available to those who want it, for a relatively small fee, while those who don't want to spend money aren't forced to. It's building into all its games the ability for players to pay as they go - for example, to get to a higher level, or to buy a new character or new equipment.

WhatsApp Messenger is a proprietary, cross-platform instant messaging application for smartphones. The service is free for the first year then costs USD 0.99 per year. In addition to text messaging, users can send each other images, video, and audio messages. On 13 June 2013, WhatsApp announced that it had reached a new daily record of processing 27 billion messages. According to the Financial Times, WhatsApp 'has done to SMS on mobile phones what Skype did to international calling on landlines'.