The Internet of Things (IoT) Is Also the Internet of Payment Options

When it comes to Product Lifecycle Management (PLM), Application Lifecycle Management (ALM) and Service Lifecycle Management (SLM), everybody talks about the need to be fully connected to the Internet of Things (IoT).

It seems that everybody wants to embrace it; everybody wants to implement it; and everybody wants to deploy it. However, some organizations are more sophisticated than others with respect to their understanding of the realities of the IoT, and some are not – but the common thread is that everyone acknowledges that it is (or, at the very least, will be) a necessity for developing and designing the products that the market wants, the software that makes them work, and the services that will keep them up and running over time.

However, there is one key area regarding the IoT where the market still remains largely fragmented in its understanding; that is, how do you pay for the IoT? And this may be particularly true on the SLM side of the equation.

Let me explain.

It may be argued that each business component supported by the IoT has its own lifecycle, and that each lifecycle, in turn, reflects its own conceptualization, development, implementation, duration, complexity and ongoing need for management and support moving forward.

The findings from Strategies For Growth’s (SFG) 2014 Field Service Management Benchmark Survey reveal an industry migration from an historical premise-based SLM user market (i.e., roughly 70 percent of existing SLM implementations are described as premise-based, vs. 30 percent as Cloud-, or SaaS-based) to a Cloud, or SaaS-based, SLM user market quickly evolving over the next 12 months (i.e., 67 percent planning to implement Cloud, or SaaS-based vs. 33 percent premise-based). The numbers are surprising in their magnitude, essentially representing a sea change from the “way things used to be”, to the “way things will be” (or already are, among the more sophisticated users).

Even more surprising is the lack of clarity currently resident in the SLM marketplace, among both vendors and users, with respect to how to price – and how to pay for – the desired SLM solution. Historically, services organizations sought either an (allegedly) all-inclusive SLM solution from a single provider, or a cherry-picked custom solution from among two or more of the best-of-breed providers. Depending on the specific case (e.g., type, size and complexity, etc. of the services organization) one could easily argue the respective benefits of either type of approach.

The thing is that times have changed – but the old habits and precedents harbored by long-time services managers sometimes stand in the way of their knowledge – and understanding – of the newer ways for acquiring SLM software (and other) solutions.

For example, when asked on a non-prompted basis, how they would prefer paying for their new and/or upgraded SLM solution, 33 percent of survey respondents cited perpetual license over subscription basis (which received only 12 percent), representing a ratio of nearly three-to-one for the traditional, tried and true payment model. While 30 percent were uncertain as to their preference, one-quarter (i.e., 25 percent) stated they still would prefer to own or lease the software.

However, when the same question was asked on a prompted basis in a follow-up survey interview – essentially with the same base of respondents – the results come out virtually 180 degrees diametrically opposed.

This is important because the only difference between the two modes of asking this one particular question is very straightforward: on the non-prompted basis, respondents were simply given a list of multiple choice answers from which they were asked to check the one response reflecting their preference. The choices were perpetual license, monthly subscription, own or lease, or don’t know/unsure.

For the same question, but asked on a prompted basis, each of the two main choices were described in the following manner:

  • “I would prefer to pay on a perpetual license basis (i.e., paying a large capital expense upfront, with ongoing monthly, quarterly or annual maintenance charges that could be expensed)”, or
  • “I would prefer to pay on a subscription basis (i.e., where there is no large upfront capital expense required, and I can expense the ongoing maintenance payments via credit card or other payment mode)”.

In the latter case, simply by defining how each of these two very different payment models work, we were able to, first, educate the potential SLM user that they have choices; and, second, that one of the choices may represent a new alternative (i.e., to them) that they may not have thought of before. As a result, the responses to this otherwise unchanged question totally flip-flopped to 44 percent preferring a subscription basis, compared with only 28 percent preferring a perpetual license. An additional 6 percent cited no preference, and only 22 percent responded don’t know/unsure.

What this shows is that while the market may be fairly sophisticated with respect to what features and levels of functionality they require from their SLM solution, many remain fairly uneducated about the payment options available to them and, as a result, tend to rely on their historical experience in paying for any service management solution on a perpetual license basis.

Regardless, the differences between the two alternative modes of payment could not be more pronounced. Say the desired SLM solution was available for roughly $1 million. Most, if not all, of this amount would be invoiced and payable within a timeframe virtually equal to the implementation and burn-in period – with a steep initial payment required up front. For such a large capital expense, the VP of Services Operations would need to present his or her case for acquisition to senior management, including the CIO, CFO and Procurement.

The acquisition cycle would likely be lengthy, complicated and hard fought from a value vs. cost basis, with each camp arguing from its own perspective. Further, even after the implementation, there would still be monthly, quarterly or annual maintenance fees required to ensure the efficient use of the solution over time. This approach is often a hard sell for the services manager, who just simply wants to implement a state-of-the-art solution that powers the company’s services operations.

The subscription model, however, offers an entirely new way of pricing and structuring the acquisition of the solution. Made possible through the proliferation of Cloud-based technology (and promoted in a big way by Salesforce.com for most of its offerings), going with a subscription model does not necessarily do away with any of the potential inter-departmental infighting between Services, Procurement and the CIO or CFO, etc.; however, what it does do is take away much of the financial burden associated with having to pay a steep upfront cost that, for some companies, could present a major cash flow or other bottom-line-related problem.

In fact, more than one respondent to the survey reveled in the possibility of having the option to pay for a much needed state-of-the-art SLM solution on a monthly basis – on his corporate credit card – rather than having to go head-to-head with management and Procurement over an extended period of time – with no assurance of winning their case.

Of course, subscription pricing is neither a miracle cure nor a panacea for the overall costs associated with acquiring and running an SLM solution; but it affords a “new” option that takes a more readily available Cloud-based solution, and makes it more easily affordable to the marketplace.

This example clearly shows that when the market is well-educated as to its options, it can more easily make a choice regarding these important types of decisions. However, it also shows that when it comes to pricing “new” technologies, or those being offered via “new” modes of delivery, they will require a bit more education from the vendors as to what options are truly available to them, and with what specific value propositions.

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One thought on “The Internet of Things (IoT) Is Also the Internet of Payment Options

  1. Great research on such an important topic.
    The legacy business model of build-and-sell is evolving to one of variations of pay-per-use/pay-per-period, with many permutations. For the buyer of the solution, the new business model can be of great value, but for the supplier of the solutions there are many risks that must be mitigated.
    Note the corporate aviation world has been using such business models in their fractional ownership programs; a pay-per-access (buy one-time partial ownership of aircraft pool), pay-per-period (pay fixed cost per year), pay-per-use (pay per flight) and pay-per-duration-of-use (pay for hours of flight time).
    Continue your quality research on this topic.

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