A Software Insider's Point of View

Software vendors face significant decisions in the next 6 to 12 months on how to respond to the economic downturn.  Anxious shareholders and slipping quarterly forecasts may lead vendors to ignore their implied vendor customer contracts.  This “implied contract” is the inherent trust a customer has with their vendor to do the right thing.  It’s a trust that the customer placed with the vendor when they moved from custom apps to packaged software.  This is important for two main reasons:

• Crisis of confidence among consumer industries will spread to B2B. Why is this important?  According to the latest BBB/Gallup Trust in Business Index Survey, almost half (47%) of those surveyed say that “they have some, very little or no trust at all with the companies they do business with in everyday life.”  Moreover the trust in businesses, for 13 of 15 industries measured, has fallen 14% during the last 7-month period.  The survey and index, commissioned by the BBB and conducted by Gallup, measures consumer trust in businesses they regularly deal with.  Growing lack of trust with every day businesses will eventually spill over to other business relationships such as technology vendors.
• Vendors who squeeze customers during the down turn will breed mistrust. As economic conditions worsen, software vendors often find themselves faced with margin pressures that eventually lead to cuts (in order of priority) in marketing, back office, customer service, sales, and R&D.  Efficiency efforts often result in short term gains as management finds ways to be more efficient and improve their processes.  Unfortunately, some vendors will go too far, leading to poor customer service, aggressive sales forces, and stagnating product lines.  This often results in angry but locked in customers who will defect at the first opportunity during the next economic recovery.  But the underlying issue here is trust.  Does the customer currently trust their software vendor to do the right thing?

Software Vendors Can Take Proactive Measures To Improve Trust During Economic Uncertainty

So the real question – Will software vendors take a longer term view to find ways to both reduce expenses and improve how they treat their customers while delivering new innovation.  At first, this may sound like a paradox, but unlike industries such as financial services and retail, high tech companies have not run out of cash.  In fact, lessons learned from previous boom and bust cycles have taught them to hoard cash for rainy days or acquisitions.  Most software vendors who survived the last economic rout socked away healthy levels of cash on hand.  The real issue – convincing nervous shareholders that they need to reinvest a greater percentage of revenue back into areas such as service and R&D during the downturn so that they are able to capitalize during the next economic boom cycle.

5 Stakeholder Focused Strategies Can Be Funded Through Maintenance and Support Fees

Where would the money come from?  Maintenance and support fees represent the most logical source. Recent conversations with insiders estimate the profitability of maintenance and support fees at up to 85% of the fees for products in the third year or greater in maturity.  Further, most support organizations privately admit that not enough of the fees actually go back into the support organization, let alone new product development.  Vendors could quickly earn customer trust by providing transparency as to where those monies are being allocated.  Five steps that would improve ownership experiences and improve trust include:

1. Lowering the overall cost of ownership. Customers seek rapid implementation methodologies, richer admin tools, and lower cost access to skilled resources.  Cost of maintenance for established products should drop over time, not increase because customers also gain greater proficiency and can leverage self service help tools.  Customers seek a reduction in the complexity, cost, and time required to upgrade products. 
   The outcome - efficiency efforts will leave money on the table for innovation and new projects.
2. Delivering hybrid deployment options. With SaaS adoption doubling every year and potentially increasing during the down turn, today’s products and solutions should support multiple deployment options.  Customers may choose hybrid options that require seamless integration among on-premise, hosting, and SaaS models.
   The outcome – choice will keep customers from feeling locked in.
3. Increasing the pace of innovation. By reinvesting more maintenance dollars into the product, vendors can better meet industry specific and customer specific enhancement requests.  Inclusion of customers in the design process of future releases, improves the relationship and provides a tangible value to the maintenance dollar. 
   The outcome - rapid delivery of such requirements will build long term trust of how the customer’s maintenance monies are deployed.
4. Supporting greater heterogeneity. Vendors need to deliver on the promise of SOA and web services.  Customer have sought improved integration from this next generation of architecture.  The intent is to connect legacy systems and support best of breed vendors. 
   The outcome -Any action to improve the capability to integrate with other systems will improve value.
5. Orchestrating value in partner ecosystems. The larger vendors have the opportunity to show how their ecosystem partners can also provide a complete solution that support regulatory compliance and operational efficiency business drivers.  Smaller vendors can identify synergies with partners to build ad hoc and eventually mutual partnerships. 
   The outcome – customers will see the value in how ecosystems can bring new solutions to life.

The bottom line.

The most valuable commodity in this economy and in business relationships is trust.  The current downturn in the economy has been exacerbated by a deterioration in trust and a lack of any one party to improve trust and accountability.  Software vendors have this opportunity to take their position of strength and demonstrate how they can provide customers value during a down turn.  In doing so, they will help their customers succeed and earn customer loyalty and good will when the economy picks up.

Your POV.

If you’re a vendor, what’s missing?  Will you be able to convince your board and management?  For customers, what else are you looking for from your vendor?  What will breed greater trust?  Post a comment or drop me a line at rwang0@gmail.com.

Copyright © 2008 R Wang. All rights reserved.