May 13, 2015

How are tech companies evolving to embrace Cloud and SaaS delivery, while still preserving ongoing revenue streams?

I think it would vary depending on the company in question. I'm sure some are farther ahead of the curve than others. But ultimately it gets down to how they want to position themselves for the future.
Tech companies have traditionally derived a significant proportion of revenue from their Professional Services (PS) businesses; as SaaS and Cloud delivery of software increases, the traditional PS implementation and upgrade services are seeing a decrease in demand. This has put a lot of pressure on provider’s revenues.

Instead of seeing Cloud as a challenge, traditional PS organizations and IT firms need to redefine success and view the Cloud as an opportunity. While implementation is often more automated and less expensive for SaaS offerings, there are services opportunities in a Cloud environment, including extended services such as optimization, reporting, and analytics. Within this environment, a greater focus will have to be placed on cultivating long-term client relationships.

Five strategies will help the Professional Services organizations of tech firms thrive in today's Cloud world:

1. Redefine success: With Professional Services driving 20 percent of revenue for many tech firms, the first step is to re-define success. Before Cloud, success was defined by billable headcount, driven by the fact that services involved mainly the implementation stage. Today's success will be defined by less tangible metrics such as customer satisfaction and retention, which contribute to long-term success and revenue.

2. Increase efficiency: The Cloud enables increased delivery efficiency, and the traditional implementation services are increasingly moving towards a simpler, often do-it-yourself install. With that genie out of the bottle, companies must embrace that delivery efficiency and continuously improve it – and thereby increase perceived value, improve customer loyalty and encourage new starts.

3. Build long-term partnerships: Traditionally, much of the revenue was derived from the initial deployment, but today's Cloud-based environment means that recurring revenue streams over a longer period of time will take a larger share of revenue while up-front revenues decrease. A focus on cultivating long-term relationships with clients is more important than ever.

4. Expand pre- and post-installation offerings: As the installation process becomes increasingly automated, more revenue-based services focused on targeting pre- and post-installation can drive revenue. Pre-sales services such as strategy and planning, and post-implementation services such as reporting and analytics, will take on a greater role and will drive an increasing share of revenue.

5. Become a more customer-centric organization: Tech firms and their Professional Services organizations will have to change their culture to become more customer-centric, with a greater focus on enabling Customer Success long-term.

By Claire O’Neill, Principal, Waterstone Management Group

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