Servitization: Driver #2 to Software Monetization

Last updated: 06 February 2018

Today, survival and success for ISVs (independent software vendors) and IDVs (intelligent device vendors) is dependent on the ability to deliver flexible business models. Specifically for IDVs, there’s the initial need to move from hardware-centric to software-centric solutions. Either way, the servitization shift is inevitable.

Consequently, servitization is one of the three key drivers (together with digitalization and consumerization) for software monetization. Just like digitalization, the effect of servitization will touch upon all functions of an organization, and ISVs and IDVs need to revisit their business models and reinvent the way they sell to their customers.

Servitization is all about offering flexible business models, focusing on:

  • Pricing strategies that offer various types of licensing options, adopt a customer-centric approach and improve customer retention.
  • Usage tracking that enables measuring consumption per application, analyzing interaction with the product and generating usage reports.
  • Business insights that help understand customer engagement, increase outcome predictability and analyze usage trends over time.

By embracing the servitization trend, companies like Rolls-Royce moved to a service-centric model, selling functionalities per usage, rather than a one-time transaction of selling an engine. Similarly printing companies are selling services rather than just printers. If you’re wondering whether this makes sense, the customer has already answered that, as the shift to services originates from the way customers consume today. In fact according to BCG “in the new era of globalization, rising trade barriers and limited financial resources may hinder companies’ ability to achieve growth by relying primarily on sales of physical products.”

If vendors want to ensure continued business with their customers, they must focus on long-term relationships, achieved by service oriented engagements. Ongoing services that address customer needs facilitate strong, enduring business, which leads to a stable growth in top line.  Selling differently is becoming essential for creating new growth opportunities for current products in today’s transforming market.

Want to learn more about the other drivers for software monetization? Stay tuned for next week’s post.

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