Cloud computing pushes vendors to seek new roles in IT value chain

By Bernard Golden, CIO |  Cloud Computing

As should be obvious, this results in much smaller purchases. Moreover, it commonly results in a subscription payment pattern-that is, a monthly payment. While the overall revenue might be significant, it's going to be realized over a period of time, not in a single payment at time of agreement.

This has several implications. For starters, revenue can be much more predictable. Subscribers typically resubscribe at rates well above 90%. Think about how attractive this can be compared to having to find a whole new set of customers each quarter. It's also much less work to get a customer to agree to a small fee commitment rather than a large one-time payment. While the total fee over the lifetime of the subscription may even be more than a one-time payment would be, the smaller initial payment makes it easier to obtain customer agreement.

4 Features of the New Cloud Computing Business Model

On the other hand, the move to smaller, incremental deals challenges established methods of doing business. Vendors need to develop new operational methods that align with the realities of pay-as-you-go or subscription models. By the way, buyers need to be aware of these implications and be ready to work with vendors following these operational methods.

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Here's just some elements of the new cloud computing business model:

Standardized offerings. Subscription and pay-as-you-go offerings feature a few, standardized offerings, much like a fast-food restaurant menu. Subscription-oriented offerings need volume to generate significant revenue. That means finding a large number of customers who are satisfied with a standard offering, rather than customizing an offering to suit a few customers. McDonald's makes money by selling a few types of burgers billions of times, not by offering to cook special meals to a few affluent customers.

Lower-touch sales. Instead of enterprise sales methods that involve lots of interaction, on-site visits, customized plans and consultative selling, cloud vendors expect customers to serve themselves in terms of education, selection and, often, buying.

Sales interaction in this case commonly focuses on telesales driven by Web-based demos. If you want to explore the integration of your cloud offering with your internal systems or processes, you'll probably need to engage a consultant, either from the provider or a third party. Furthermore, with so much less revenue early in the product or service lifecycle, the provider can't afford to invest much in the sales process, so don't be surprised if you, the customer, have to take on more of the assessment effort.


Originally published on CIO |  Click here to read the original story.
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