In maturing packaged software markets, when you look under the hood of many software suites, we find collections of software modules that were previously separate products, many from previously separate companies.
From the product perspective, the drive for the integration into a single and monolithic “whole product” probably comes from three bottom-line areas:
- Increased competitiveness
- The combined solution becomes easier to sell
- The combined solution becomes easier to buy
The first and second cases are very closely linked. A sales person’s job is made much easier if they can offer a prospect a “two for the price of one” argument. The problem is, through this conversion of providing greater value to the customer, value in the form of potential additional revenue to the vendor is destroyed.
Is it possible, that by exploring the third reason in the context of cloud computing, value could not only be preserved, but could actually be increased?
What if a the combined “software suite” could be licensed by the year under the traditional packaged software sales model, but a single component were made available via the cloud under constrained terms?
In this way, not only can a revenue stream from a separate product be maintained and grown, but the cloud-based (SaaS) terms could be used to actually support pricing and the negotiation of the combined suite.
There are additional benefits. Making a strong component (a good assumption considering the company was acquired for it) available via the cloud under constrained terms could enable the penetration of customers that would not license the entire suite.
A cloud deployment could also enable the penetration of new regions or market segments (SMB’s, for example) that would previously have borne too high a cost of sales.
Also, by maintaining a separate P&L, for what could be reduced to a suite component, accountability is preserved and continued development is more easily justified. Resolving a common lament from the market after the acquisition of a favorite piece of software.
Cloud as Additional Channel
The broadening of market channels (traditional channels plus a new cloud channel) provides a software vendor with greater market coverage at a scalable cost. It’s also a win for customers, who are actively looking for greater flexibility in licensing models; and as their IT budgets continue to tighten, are feeling a growing imperative to find a way to leverage the Public Cloud.
Using the cloud, we can make individual software components available with a business model that better fits the use model. Isn’t this the path to customers gaining greater value from their vendors, and vendors capturing growth through innovation?
