Virtual Software: Changing Business Models

One of the best texts I’ve ever read about business models was written by Cory Doctorow, a famous writer and entrepreneur. His novel Makers was not only a great story, but virtually a doctoral thesis on how business models can change and have a radical impact on everything they touch.

A couple years ago, I helped launch a new virtualized software product line for Dialogic. The PowerVille™ Load Balancer was different in many ways from other products I’d managed. The software was totally agnostic to the underlying hardware, courtesy of a Java code base which was highly portable to multiple topologies. As a result, it fit nicely into a variety of virtual environments and also was poised to make the leap into emerging Cloud architectures, in line with trends like the emerging Virtualized Network Function (VNF) and approaches like the use of HEAT templates for configuration.

A few months into the launch, my manager and I talked about how to take this product to the next level and realized that we needed different business models for this kind of product. The traditional load balancer provided by industry leaders such as F5 was built on top of proprietary hardware platforms, and the business model followed suit. Pricing was typically based on a purchase, where all of the hardware (and software) was purchased upfront, accompanied by a service agreement which was renewed year by year.  This approach is often called the perpetual model.

But with the Cloud taking over, customers were looking for different answers. Cloud Services such as Amazon Web Services (AWS) and lots of industry software had moved to subscription or usage based business models. For example, if you buy a subscription to to a software product like Adobe Acrobat, you get the right to use the product so long as you keep paying the monthly subscription fees. Amazon went further. You can buy rights to AWS services and only pay for the usage of the Cloud infrastructure you have purchased. In the world of virtual services, this permits customers to scale up for high usage events—think of the capacity need to support online voting via text for a television program like American Idol—and then scale back down as needed, perhaps even to zero.

We considered these kinds of changes for the Dialogic load balancer, but other virtual software products at the company ended up taking the lead in becoming available under subscription or usage based models. The implications were huge. Salesreps loved the perpetual model, since they’d get a big chunk of commissions every time they sold a big box.  In a subscription or usage based model, the revenue—and the commissions—move to a “pay as you go” model. Hence, no big upfront commissions payout and you need to keep the customer happy to get that recurring revenue stream. By contrast, finance executives now had a revenue stream which was less bumpy, since there was somewhat less incentive for Sales to go out and close those end of quarter deals. Customers also like the flexibility of subscription models. Typically, they may pay more over the long haul vs. the perpetual model, but they also have the option to change to a new product or service mid-stream. In summary, the move to virtual software and related technical innovations such as Software as a Service (SaaS), Infrastructure as a Service (IaaS) or by extension Anything as a Service is likely to drag in new business models.  These new business models change the finances both on the customer and vendor side and not everybody will be pleased with the results, but momentum for these trends continues to grow.

If your organization has participated in the evolution from perpetual to subscription or usage based business models, please  weigh in with your comments. If you’d like to explore strategies on how to evolve your application solutions or other communications products in this rapidly changing business environment, you can reach me on LinkedIn or on our web site.

 

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Testing Product Proof of Concepts

Product managers are called upon to accomplish many tasks at different points in a product life cycle. One which can be important and potentially even a game changer is to develop a proof of concept for a product and then test the idea out.  I’ll provide an  example.

In one case, my division wanted us to explore a potential product concept for a hot business area — the Internet of Things (IoT).  The first challenge was to look at the market and see if there was’s a value proposition that made sense for the company.  My company was well known for being able to integrate hardware and software, so a product that built on that approach potentially offered both a technical and business fit.  Next came study of the market and examining the current players. In the IoT space, it’s somewhat crowded, but various companies like Intel offer starting points in the form of toolkits, white papers and architectures, and there are several industry organizations that also offer guidance to would-be participants. Based on those resources and other investigations, we developed a product “Proof of Concept” presentation.  It addressed the product concept, identified where our company added value and a contained a series of questions for potential partners / customers.

The next step was to test it out.  Our division put the word out to our sales team that we had a product concept we’d like to review with potential prospects.  When a couple of candidates were identified, we set up calls.  We shared the product concept in the form of a presentation and used it to discuss three main areas with the prospects:

1) What did they think of our concept?

2) What had their experiences been with similar products?

3) Could they share any pain points?

The results were interesting.  The prospects were intrigued by the concepts, but immediately began to compare them with existing products. That quickly led to the third phase, a discussion of pain points.  All of this discussion provided helpful clues on where the markets were being well served and where there might be openings for new products. By meeting with multiple prospects, we got diverse perspectives and also heard some common themes.  The testing confirmed the product concept had potential and could be the basis for further explorations and refinement if the company chose to take those next steps.

In summary, one way to test the viability of a product concept is to create a “proof of concept,” which may be as simple as a presentation or at the next level, a more complete working model. Then, it’s important to test the concept and how well it meets the needs of potential customers, before making the larger investments needed to bring a final version of the product to market.

Has your company seen similar challenges in considering new product offerings? What approaches were taken to test the new product concepts?  Please feel free to offer comments on your experiences. Or, reach out to me on LinkedIn at http://http://www.linkedin.com/in/james-rafferty-ma to discuss needs for similar projects.

 

 

 

 

Going Independent — Again

After a challenging but rewarding three year stint in product management at Dialogic, I am now independent again early in 2018. Four years back, I ran my consulting business for a year and gained some additional training before re-joining Dialogic. In this post, I’ll talk about some new and different approaches I took in my role with the company during the past three years that produced positive results.

  1. Using Agile to Manage and Change Priorities – In 2014, I took a course in SCRUM at Quality and Productivity Solutions and got certified by SCRUMStudy as a SCRUM Product Owner.  At Dialogic, I wore many hats and had frequent changes in priorities. By creating SCRUM Epics and Stories, I updated my priorities weekly and was able to make fast changes when needed in reaction to market changes, new projects or other internal factors.
  2. Building and Managing Teams – In earlier Product Management roles, I mostly focused on the product in areas such as managing the roadmap, setting pricing and training Sales. During the past three years, I reached out to the other departments and convened cross functional meetings about once every two weeks. In other words, I managed the products as programs.  This way, our departments worked together to drive success for our products and the results were very positive for both startup products and more mature product lines. For example, we identified customer pain points and then the team created solutions to deal with them.
  3. Going Virtual – My products varied over the three years, but included a mix of hardware and software, or were purely software.  A trend which cut across several of the product lines was the need to run the software on Virtual Machines, notably in the VMware and Kernel-based Virtual Machine (KVM) environments. For example, by running in a virtual environment, customers got to use their own choice of servers for routine management tasks. For our virtual load balancer product, Dialogic® Powerville™ LB, we took it a step further and could run all of the software on VMware or other virtual environments and included sophisticated features such as built-in redundancy.
  4. Marketing via Effective Content Management – In the past year, I worked with the Dialogic marketing team to devise a marketing plan for the Dialogic IMG 2020 Integrated Media Gateway and revise our content management to help drive more leads.  We wrote several new white papers on important use cases such as SIP Trunking, Transcoding and SS7 to SIP interworking.  We also promoted recent design wins and market leadership via press releases and conducted webinars which tied into all of these marketing themes. The net result was to bring more attention to these products, improve our SEO rankings for related product searches and reinforce our position as a market leader in the low density trunking media gateway market.

These four approaches are examples of ways we were able to innovate.  They enabled me to both be a product-focused individual contributor and lead broader team efforts that produced lasting results. If you’ve had similar needs or experiences, I’d love to hear your feedback.

I’ll write more about my recent experiences in Product Management, Marketing and Communications Technology, plus thoughts on the year ahead within upcoming posts.