Monday, April 2, 2012

It’s a dev world


In technology we all constantly hear that world is changing. However, what I’d like to focus on here is what I believe to be an even more subtle change in the demand for IT.

A while ago it was all about services. Many resellers went down the managed services route and provided their customers with a fixed fee for service. The customer could more easily budget and the IT provider received a known income every month. This was all great but it hastened the process of consumerization of theses services. It was a bit like an insurance policy in that the IT provider worked to ensure as little disruption to the customer as they could. For most consumers this now meant they saw very few issues and sadly became lulled into this becoming the norm. Any IT provider worth their salt had raised the bar when it came to service.

Problem was that customers now questioned why they were paying ‘so much’ for things to run like this (as they do with insurance policies). All they tended to see now were the dollars going out the door every month and diminished value in return. Thus, they agitated for lower costs and looked to competitors offering the same perceived service but at a cheaper cost. To their minds, there was no difference between company A monitoring a server as there is company B monitoring that same server but at a lower cost.

This consumerization has been accelerated with the growth in online services such as Office 365. Theses products are typically sold around their cost saving benefits and focus the consumers attention at a per month per user cost negating any migration or ongoing support costs. This has been borne out with my own recent experiences with people looking to migrate their email to the cloud. Most are under the mistaken impression that migration costs, planning, support and training are all included in the per month price they pay. Some reseller businesses even pander to this mistaken impression by absorbing such cost upfront in that they can recoup these later down the track. There is no questioning that this is a valid business strategy but it relies on the being able to absorb these upfront costs. This doesn’t make it a suitable model for most smaller resellers who can ill afford such risk.

This is why I contend that the era of services is fast coming to and end for smaller players. You cannot survive in the service business now without volume. The business model that this thriving is development. Look at the exploding world of devices that each have their own application infrastructure around them, the Apple Apps store, Zune Market, Android Marketplace and so on. My understand is that soon even the upcoming releases of Microsoft software, such as Windows 8, will come with an integrated apps store.

Development gives you the advantage of leverage. You can write it once and then sell it many times. The risk is generally all in the upfront with development but it is fast becoming the model that consumers understand and accept. They understand buying a product or a thing but now struggle with buying an intangible like a service.

Let’s look at this in the context of Office 365. What development can you really wrap around email? Probably not a lot and therefore it is doomed to simply become another thing that is consumerized. Where the problem lies for resellers is that if all the customer wants is a hosted email service then the decision is simply going to be about cost, pure and simple. If you can’t do it for the cheapest price then chances are you are going to loose that business to someone else who can absorb more of the upfront costs and offer it cheaper initially to win the business. For the smaller resellers this is very hard to counter.

The opportunity (and there is always one) is to consider products that facilitate development. Products that allow resellers to build in smarts and intelligence that they can then sell multiple times. In the Office 365 space this certainly means SharePoint. Problem is getting people interested enough in SharePoint beyond just the cost savings they make by moving their emails to the cloud. Generating such interest is also no mean feat, and is almost impossible for people not using SharePoint already in the own business.

In summary then, my current thinking tends to lead me to the conclusion that we are fast approaching the end of the service era in IT (at least in the smaller end of the market). I’m not saying that the need for service will disappear, what I am saying is that service opportunities are being commoditized where the only the big players in the market can gain advantage. I’m saying that many resellers will have trouble making money out of products (like email) which don’t offer development opportunity. I’m saying that if you want to flourish and grow then you need to seriously consider applications which support the ability to build and extend, thereby creating a point of differentiation that customers will pay for.