ICT resellers that want to thrive in a changing technology market need to be prepared to share risks with their customers and move towards consumption-based billing models that allow companies to spread their technology procurement costs over a longer period of time.
That’s the word from Gary Pickford, CEO of Tarsus Distribution, who says that enterprise technology users have lost their appetite for ICT projects that require high levels of upfront investment and a long wait for return on investment. Instead, they want to bring more predictability to their IT spending and conserve their capital for other strategic business projects.
Says Pickford: “In an environment where access to financing is tight and where most companies are in cost reduction mode, few mid-sized companies are willing to pay R 2 million upfront for an IT solution that will produce a return on investment over a two to three-year horizon. They’d prefer to spend R50,000 a month on the understanding that the benefits of the new technology will come over time.”
Pickford says that most enterprise ICT users are struggling to make sense of a complex technology environment, where they have access to a range of on-premise and cloud-based business solutions. They are looking to resellers to demystify the technology for them and to help them match the right solution to their business need.
“The solutions on offer are all expensive for a smaller or medium-sized company, but businesses understand that technology can offer them substantial benefits in terms of cost reduction, efficiency gains, heightened productivity or innovation. They’re willing to invest, but they also want to see a strong business case,” Pickford adds.
“They’re expecting resellers to talk to them in terms of business benefits rather than technical specs. They’re saying, ‘How will your CRM solution help me to grow my market share?’, ‘How can I reduce my inventory management costs?’ and ‘What can your e-commerce solution do to help me reach new markets?’ Resellers are needing to learn to speak this language.”
With this shift in the market, enterprises are looking for technology partners who are willing to share the risk of deploying new applications and infrastructure with them. They want resellers to absorb some of the upfront costs of building out new solutions and then recoup it through annuity-based and consumption-based billing, says Pickford.
Companies like this approach because it links their bill for their IT applications and services to the cost, quality and value of the IT services they consume. It links the cost of IT to its value in a format that a business manager can understand. This brings more transparency to the service that the reseller provides and ultimately helps to build trust between the reseller and the customer.
For resellers, converting their business model to consumption is a complex and challenging undertaking that changes everything from project financing, revenue streams and profit margins to sales and marketing strategies, says Pickford.
However, especially with the rise of the cloud, they will need to move from traditional licence, hardware sales and maintenance business models to subscription-based models to remain aligned with the market.
Resellers should work with vendors and distribution partners who are ready to accommodate this shift in the market, Pickford says. “The good news is that resellers that master the new business model will benefit from more predictable revenue streams and closer customer relationships,” he adds.