As a vendor or SI you can approach the delivery of enterprise software in two ways:
- The good old and safe way; accept the premises, scope their processes and ways, then deliver something that makes the existing more efficient.
- Do not accept the premises, revisit their strategy and (re)model their business, then supply Software as a Business Model (SaaBM of course) that can deliver on that strategy in an effective way.
I choose the latter. Hence my interest in Strategy and Business Models:
Any business (or even activity) requires clarification of three issues, in this sequence, everything else follows:
- Business Model
- Business Plan
Strategy (based on Michael Porter’s work) is the answer to the following three questions:
- What value are you to deliver,
- to what customer, and
- how are you going to be different?
Who has a need?
What is the need?
Does she see the need?
How can you visualise the need by offering a solution?
Sounds simple? But alas, it's not:
The “who” and the “need” are closely knit, and in most cases quite confusing as your "customer" is not singular, almost never: You have users that you'll need but that do not want to pay, users that want to pay but that will not even use your product, users that want to pay and are heavy users of your product, users that all need and that might even be willing to pay, or users that nobody wants but who want to pay. As I said, highly confusing.
Having tinkered with this a lot, I've found that the "customer" most often can be split into three tiers or groups:
Primary customer/user: The ones that finds a real and tangible value in your product and who are willing to pay for that. In some cases they will be actual users of the product/service, but sometimes they will not even use the system or be very light users, an indirect value delivery situation. These are the users that you will have to "sell" to, but not necessarily those you will create the system or service features and solutions for.
Social platforms: The power users, the ones that can translate the available volume and network to tangible value that is worth paying for, often a minority. Or corporations that wants a branded presence or access to the network.
In-cloud apps, enterprise systems: Company management, and sometimes power users. These might be actual users or not at all, but they have a need to ensure company wide data consistency or use, or they have a need for more features or something bespoke.
Secondary customer/user: The ones that the primary user is dependent on and who have the underlying needs that is fulfilled by your product, courtesy of the primary customer. Typically they take the offer for granted; free use of some cloudy service or given systems that allows them to do their job, so no interest in paying. These are the customer you design your product or service for, these are the ones that must find it easy, useful and a pleasure to use. They are the drivers of growth pushing the value up for the primary (and tertiary) user, but they are not the direct source of income.
Social platforms: You and me and my uncle finding it easy to connect and that it enhances our every day life. The more we are the merrier the value is for ourselves and for the other "customer" groups.
In-cloud apps, enterprise software: The bulk of the users. Takes the offer for granted but are still the harshest critics and callers for features, ease of use and all that which makes your product or service. This is the customer group that will eat your cash while not wanting to pay, but still you have to love them. Make them dependent on your product and attracting the paying customer groups will be a walk in the park.
Tertiary customer/user: The third layer of users that can enhance the overall value for both above groups, and that often finds enough value in the product or service to be willing to pay as well.
Social platforms: Advertisers, service and product suppliers. Willing to pay for the use of a virtual "distribution channel", and useful for the two other customer groups. Some times these can be just annoying (see advertising) which of course might indicate that the choice of tertiary customer is wrong.
In-cloud apps, enterprise software: Service and product vendors as well as most other ecosphere members and partners. Sometimes these are a core and crucial part of the product or service value, but if the strategy is any good their use-interests would be high enough to make them paying customers - frequently in the form of using the product or service as an effective distribution channel.
So, who are your primary, secondary and tertiary customers?
Why, what value do they need, and what would they be willing to pay?
And what do they add to the overall value of your product or service?
Then find how you can be different from your competition and you have a strategy. With that you're ready to start thinking about how to use your resources to deliver on that strategy in such a way that you can keep a lot of the value yourself. That would be your Business Model and you're ready to plan and execute.
[Update May 2011: Refined the model a wee bit and used it as basis to discuss the approach of Enterprise Software vendors in the blog post "Enterprise software's wrong focus"]