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Week 5: Consumption Economics Predictions Came True…Now What Do We Do?

This week, we present Chapter 4: Learning to Love Micro-Transactions. This is the fifth post in a series dedicated to helping MSPs understand and adopt the recommendations of Consumption Economics–The New Rules of Tech. Chuck introduces the chapter by sharing how the content resonates with his 30+ years of industry insight.

A FEW WORDS FROM CHUCKCE

In the old world of technology product development, the more features and functions included in the standard product, the better. Bundling more and more “bells and whistles” into the next release of a product was very lucrative for technology vendors. Continuing to add new functions on a regular basis encouraged existing customers to upgrade to the latest and greatest version. But the fascination with technology slowly faded as products became too complex to learn, too difficult to use, and too expensive.

Customers don’t want to buy a costly product with 30 features, particularly if they will only use 10 of them. The savvy consumer only wants to pay for the necessary features and submit payment only at the time of consumption. Technology VARs and MSPs have customers who are content with using outdated versions of their products because they don’t feel the need to regularly upgrade to new products with features they will never use. This change in buying behavior has created a serious dilemma for technology VARs and MSPs. So, what is the strategy for surviving this massive shift? How do technology VARs and MSPs prosper in this environment and simplify product offerings while meeting customer needs?

The answer involves a discussion about transforming the technology VAR / MSP business model to embrace micro-transactions (MTs). From a revenue perspective, this isn’t an ideal scenario. But, like it or not, this is what the customers are demanding and it IS the new reality for technology VARs and MSPs. Read on for more discussion about MTs in Chapter 4 of Consumption Economics.

 

AN EXCERPT FROM Consumption Economics—The New Rules of Tech

Chapter 4: Learning to Love Micro-Transactions

The cloud will trigger the need for a completely new set of capabilities from companies that play in the space. It, along with managed or outsourced services, means OpEx budgets are where many tech categories are headed. In an OpEx world, volume matters. That means tech companies need to learn to love micro-transactions (MTs)—to monitor them, drive them, count them, and bill for them. We need to make our ability to proactively drive their consumption a top priority. We need to build an MT revenue gas pedal that we can use to accelerate our growth speed. So what do MTs look like?

Needed: A High Volume of Micro-Transactions (MTs)
  • Per app
  • Per user per month
  • Per feature level
  • Per print or per document
  • Per GB data stored
  • Per hour of resource used
  • Per purchase
  • Per data service subscribed
  • Per content downloaded

Tens of dollars per transaction…

NOT tens of thousands per transaction.

All these other industries are busy redefining themselves to be consumed in a service- based offering model. Once they begin to think that way—and bill that way—their strategies for growing customer revenue change.

Week#5 CE Chart

Tech companies historically viewed both product waves and account development cyclically according to the product playbook: Develop a new product, and then penetrate the market and the individual customers within it. Then build a second product that links to the first one, and repeat the cycle. The faster you are able to get each customer to take on additional products through a new selling cycle, the faster that account grows. As we mentioned before, because product prices were high and big customers needed big systems, the sale contracts were huge. It was a stair-step selling process built on big contracts.

Imagine being a fly on the wall at the tech company headquarters of a traditional product playbook company on the day the CEO first realizes they are at the tipping point. They are going to miss their number this quarter, not because they didn’t sign enough key deals, but because the tiny end users didn’t consume as many micro-transactions as they thought they would. Who will the CEO yell at? It’s not R&D’s fault; the product works. It’s not sales’ or marketing’s fault; they got the IT departments to sign the platform contracts. It’s not service’s fault; all the customers were up and operational. Who’s left to yell at? The answer is no one — and everyone. The question the company needs to ask itself is: Who owns the job of driving consumption?

What we realize now is that driving consumption is a corporate model, not a functional or departmental task. In the new normal, it is a web of micro-transactions, and it will require the involvement of every employee in every department to optimize that web.

 

NEXT WEEK: Chapter 5: The Data Piling Up In the Corner

Because D3UC is dedicated to and entrenched with the MSP community, each week a new chapter of Consumption Economics will be discussed with emphasis focused on the challenges faced by VARs and MSPs who are transforming their companies’ business models to survive and thrive in the new, Cloud-driven world.

If you would like an overview of the book Consumption Economics, you can download a copy of the “abridged” version written by the TSIA from our website.

 

Originally published May 30, 2015. Reviewed November 2016.

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