Game theory and the desire to realize short term competitive advantage suggest that someone will eventually break open the support black box as a means to differentiate themselves. A Gartner poll of over a hundred practitioners showed that 73% of product managers and marketers in technology providers are “concerned” or “very concerned” about their competitors breaking apart the traditional maintenance bundle which combines technical support service provision, patch access, firmware updates and product upgrade rights. 63% claimed that they would be likely to follow suit if their rivals were to implement such a policy. Given that many providers are overly reliant upon their support revenue streams for their very survival it is unsurprising that an action which many believe would significantly impact and impair this life giving annuity is feared.
Be afraid, be very afraid…
The breaking apart of the traditional support bundle would be likely to have a detrimental short term effect upon provider support revenues as customers experiment with alternative support provider’s and the cancellation of perceived “non-essential” elements such as product upgrade rights. What would be the net impact upon support revenues? No-one knows. Although we obviously have models and theories. The effect is likely to vary from provider to provider and market to market. Complex applications with extended implementation times will have lower upgrade rights stickiness. Mature, stable solutions with vibrant user communities are likely to exhibit lower technical guidance attach rates.
It is likely that after an initial decline, the market will find a new equilibrium point and revenues would stabilize. Vendors who are able to convincingly demonstrate the value of their support services as well as the tangible benefits of subsequent product releases have far less to be concerned about than those that rely solely upon the proprietary lock in effect of patch access rights.
This will never happen… The product support super tanker is unsinkable!
So was the Titanic! Many providers are overly ebullient about the long term future of the support black box. This enthusiasm may be a façade to hide their concerns, but their lack of willingness to discuss the issue is often mistaken as arrogance by their customers who are still largely unconvinced of the value they derive from their maintenance fees. The ongoing transition from reactive to proactive and predictive support services is helping but there is still a long way to go. Mature markets with high levels of solution penetration and low green field business opportunities are most likely to spawn such a phenomena. Providers who are haemorrhaging revenue to new SaaS entrants with lower cost bases are also potential candidates for breaking the bundle. It is, after all, preferable to get 5% of something rather than 20% of nothing. (Note: All estimations are arbitrary and individual provider’s gas mileage may vary!)
But support isn’t ready to enter the spotlight on the commercial stage… …or is it?
The use of product support and the associated contract model(s) as a competitive differentiator is still rare within many IT markets, and yet, given the continual commoditization of technology and solutions it can be anticipated that it is an area that will be leveraged more aggressively in the future. Support competence is rarely considered within today’s technology procurement evaluations. As support transitions from reactive to proactive and predictive models, customer understanding of the value of support will increase. As understanding and expectations increases, opportunities to use support as a competitive differentiator will emerge. Providers who are able to demonstrate reduced TCO and increased business value through a combination of support service elements such as issue avoidance, routine operations out-tasking and product advocacy services will be more attractive. The internal IT operations costs associated with technology purchases are considerable. By focusing messaging on how the technology is operated and maintained within the customer environment as well as the value it delivers, providers will show that they are committed to more than the technology sale and are looking to build a long term value based relationship with their customers.
Okay… Maybe I’m interested / concerned / amused / confused… But what now?
Burying ones head in the sand never did anyone any good. This is a very real (if somewhat unlikely) possibility and it is necessary and appropriate for every technology provider to prepare and periodically update and review contingency plans to deal with the effects of a competitive move of this nature within their markets.
When deciding to break open the maintenance bundle there are many many options to choose from. Providers must carefully consider how far they wish to go as they may be able to claim market share without offering every element of the package as a standalone offering. First movers will get to choose how far they go. Followers will be faced with fewer options.
Different products have different usage profiles and implementation lifecycles and consequently the value attributed to the upgrade element of the support bundle will vary from sector to sector. Providers must ensure that their upgrade element pricing reflects actual customer upgrade behaviour if it is to be compelling.
This is not a course of action to be taken lightly. But it is a strategy that has the potential to deliver significant benefits for those brave and ballsy enough to go through with it. It will undoubtedly hurt. But so long as it hurts the other guy more then that may be a price that people are prepared to pay. After all, small SaaS start-ups may not have the reserves necessary to weather an extended storm. Leaving the market for the previous incumbents to reclaim at their leisure.
Will any of this actually happen? Yes. No. Maybe. But irrespective of whether or not it actually does; provider’s need to consider this “end of the world” scenario and plan accordingly.
Don’t have nightmares people!
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