Salesforce.com hates software.
In and around their headquarters in San Francisco, CA, all you see is big, bold billboards with a big red slash through the word “Software”. It’s even in their telephone number: 1-800-NO-SOFTWARE.
Of course, Salesforce.com would not exist without software. The real message to customers is “don’t worry about having to install or maintain software on site. Let us take care of that.” That’s the ultimate service model.
Here’s the Dilemma
It is challenging to figure out exactly what model works the best for your business when you have both a physical product and a service. Some service companies, like cellphone carriers, need products to get customer to use the service. Both products and services drive their customer acquisition and retention. The companies that successfully navigate this dilemma have figured out the right mix to make their customers happy.
Case in Point
Salesforce wholeheartedly embraces the Software as a Service (SaaS) model, which is not a new idea. SaaS traces its roots back to the dot-com boom (1995-2000) when companies, known as Application Service Providers (ASP), would provide services that you could access over the Internet. The problem was that these services required physical servers to be setup each time a customer came on board. This made scaling nearly impossible. To add even more complexity, most ASP companies were customizing software for each customer and not taking advantage of a common framework. What solved this was cloud computing.
Infrastructure Matters
Cloud computing takes advantage of virtualization. Virtualization makes it simple to spin up new servers for new or existing customers. This paradigm shift in access to compute power is what is driving lots of software companies into the SaaS model.
In addition, software companies have developed methodologies to better handle this new world of “multi-tenant” systems. This has a tremendous advantage because a company can now offer their SaaS products to a larger and larger set of small customers — something that was nearly impossible before. Couple that with Salesforce integrations (as an example) to other products and you can see the power of SaaS.
Take-a-way: Scan the horizon for trends that accelerate or dampen your products adoption
The Yin and Yang of Product vs Service
Software companies struggle to figure out if it’s better to have a subscription or sell a fully contained software package. Most have taken on the hybrid model of selling maintenance or support as a recurring fee but that model is starting to lose to the full service SaaS model.
This service trend, brought about by more and more SaaS companies, makes it a lot easier to roll out new software features without having to worry about which version, which customer has. It’s an incredibly powerful concept that makes a lot of sense. You can even see this trend in mobile applications where instead of downloading a program, you simple “browse” to a server that looks a lot like an downloaded app.The right model for your business will be based on all sorts of factors that start with the customer experience.
Take-a-way: Take a holistic view of you product to gauge how form, fit and function play off each other.
Customer Experience
All software, actually, all products, need to focus on the end users experience so that customers will continue to use your product. Service type products have an advantage over buy and forget products in that the customer directly interacts with the company at some regular interval. This allows you to gauge what is working and what is not.
Customer experience matters more than any fancy feature. If your customers have to jump through hoops to get help or perform tasks, they will slowly but surely find something else to buy. Nailing the customer experience requires making the customers wants and needs a priority. This does not mean you wholeheartedly listen to every single demand but you do need to see the trends.
Apple nails the customer experience with all their products right from the start. As soon as you turn on a Mac, you are greeted by a inviting music, welcomes in multiple languages and the ability to seamlessly transfer your files from your old Mac to your new Mac. Simply stellar.
Take-a-way: Be it a product or service, the customer experience needs to be stellar.
What Business Are You Really In?
Lots of companies find themselves asking “what business am I really in?” because that question dictates a lot of the product vs service trade-offs. It’s hard to understand/predict what the best path maybe simply because technology moves so fast. Just think back when Napster first came on the scene.
Napster was the first viable music sharing platform to challenge the traditional record/tape/CD music product. It did not take long for the established media companies to freakout and want to crush the technology. Of course, there was good reason to initially feel this way — Napster was enabling pirating and that cut into profits.
What’s interesting about Napster and the business model that it spawned, is now services like iTunes and Spotify dominate music delivery. Traditional record stores have gone the way of video stores. How could they compete when it’s so easy to instantly grab or subscribe to an artist.
IBM also realized that the laptop businesses they were in could not be sustained. Those realizations led them to sell their profitable laptop business to Lenovo to be a more dominate player in the software services business. If you would have told someone that 10 years ago, they would have thought you were nuts. Remember the old saying, no one ever got fired for choosing IBM.
Take-a-way: Rapidly adapt your business model to the macro business trends you see
Ask Yourself This
- Do the core technologies exist today to make my product into a service?
- What are the tangible aspects of my product that require it to physically be in my customers hands?
- Does my product require routine maintenance/calibration or does it have a monitoring component?
- Does the product I offer have competitors that offer it as a service or vis a versa?
- What is my offers core value to the customers? If I changed from service to product or product to service, what opportunities would that open up?
Dig Deeper
- Jason Cohen’s Pre-History of SaaS
- Switch from Software Service to Products
- Dot-com Bubble
- IBM’s switch to services
- About Saleforce
- Quirky moves to services
Next Up
It’s vital to deeply understand the business you are in and what value you give to your customers. It’s what will separate you from your competitors. Equally important, or rather critical to get right, is if your product or service has growth potential or will hit a dead end. That’s what the next dilemma, original vs pivot, will dive into. I’m glad you have stuck with the series. You’re close to the end. Way to go!
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