presented by Keynote Speaker J.B. Wood, CEO, TSIA at the 2014 ISG SIC, September 30, 2014

1. B4B: Where Tech Is Headed
J.B. Wood CEO TSIA
Lead Author: B4B
ISG
September 2014

2. 2
2009
2011
2013
“We Have a Problem…”
“A New Purchasing
Model Is Coming”
“Industry Transformation”

3. Risk Shifts to The Vendor
1
3
Simplicity Will Be King
2
Users Drive Tech Decisions
3
Customer Aggregators Shrink Direct Market
4
Channel Value Reset
5
Tech Pricing Under Pressure
6
Usage Data Leverage Becomes Key
7
© TCG Advisors and TSIA
The New Rules of Tech (circa 2010)
Services Will Own the Customer
8

4. Industry Trends Impacting
Tech Supplier Business Models

5. Revenue of Large Cap Tech Companies Are Declining
5
2008 Q4, $248B
2011 Q4, $242B
$206B
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2008
2009
2010
2011
2012
2013
2014
-$7B Q4 to Q1
- $36B or 15%
- $140B/Yr
SOURCE: TSIA Service 50 Index

6. What Is Happening to IT Suppliers?
6
Software Eating Hardware.
Cloud Eating On-Prem.
Services Eating Products.
Business Buyers Eating IT Budget.
Sell Complex Products
To the IT Department
Sell Outcome Services
To the Business Users
Complexity
Price Per Unit

7. Service vs. Product Spending
7
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
2008
2009
2010
2011
2012
2013
2014
Total Service & Product Revenues
Sum of Product Revenue
Sum of Service Revenue

8. What Is Happening to Service Providers?
8
Software Eating Labor.
Cloud Eating On-Prem.
Point Products Battling Solutions.
Who’s Budget? IT or Business?
Sell Services To Business Buyers
Sell Outcome Services
To the Business Users
Complexity
Price Per Unit

9. Market Forces in Play
9
Profitable Legacy Model
?
Commoditized Legacy Model
XaaS 1.0
Supplier Scenarios
Demand for New Consumption Models
Profitability of Core Offering

10. No One Wants Either Scenario
10
Profitable Legacy Model
?
Commoditized Legacy Model
XaaS 1.0
Supplier Scenarios
Demand for New Consumption Models
Profitability of Core Offering
X
X
Everyone Seeking

11. B4B Frameworks and How
Tech Suppliers Are Aligning to Transform

12. The Great Divide
Product Focused
Outcome Focused
CUSTOMERS
SUPPLIERS
Much of Future Supplier Growth and Differentiation Will Be Determined In This White Space
12

13. Basic Offer:
Complex Offer:
Optimize Offer:
Outcome Offer:
B4B Operating Model Construct
Optimal ROI
Ease
Best Product,
Fair Price
Fast and Sure Availability
Standard, Reliable Product
Implementation and Maintenance Services
Tailored Product
Adoption Services
Connected Product
+
+
LEVEL 1
SUPPLIER
LEVEL 2 SUPPLIER
LEVEL 3 SUPPLIER
LEVEL 4 SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Operate (Managed) Services
Customer Value Power
+
Outcome as-a- Service
Supplier Offer Power
13

14. LEVEL 1 AND LEVEL 2 SUPPLIERS
B4B:
14
“B2B was an age where a manufacturer sold products TO a business customer.”

15. What Do Manufacturers Like To Do?
•
Make.
•
Sell.
•
Ship.
15

16. Basic Offer:
Level 1 Works Great For Basic Products
Best Product,
Fair Price
Standard,
Reliable Product
LEVEL 1
SUPPLIER
Supplier Operating Model
Product Focused
Outcome Focused
Customer Value Power
Supplier Offer Power
Make.
Sell.
Ship.
16
It’s Easy!
IT Department Role To Own and Operate

17. Basic Offer:
Level 1 Supplier: The Financial Model Was Well Understood
LEVEL 1
SUPPLIER
Supplier Operating Model
Product
Focused
Outcome
Focused
Rev
Mix
PRODUCT
OTHER
Cost Structure
Target
Profit
% COGS
% COM
% COS
% G&A
% EBIT
Make. Sell. Ship.
17

18. Out of Level 1 Grew A Critical, Tacit Agreement
Supplier Model: OUTCOME PROVIDER
Customer Responsible Zone
Supplier Responsible Zone
Asset Works
Asset Operational
Optimized ROI
Competitive Differentiation
Customer Value Objectives (meet needs of different buyer types)
Make. Sell. Ship.
Own. Operate. Get Outcome.
18

19. Once Software Or Systems Get Involved, Customers Need Help to Get and Keep the Product Operational
19

20. Complex Offers Require a Level 2 Supplier
20
Basic Offer:
Complex Offer:
Optimize Offer:
Outcome Offer:
LEVEL 1
SUPPLIER
LEVEL 2 SUPPLIER
LEVEL 3 SUPPLIER
LEVEL 4 SUPPLIER
Supplier Operating Model
Product Focused
Outcome
Focused
Great Product
Great Product
Product Attached Services
IT Department Role To Own and Operate
I Need a
Bit of Help!
Make. Sell. Ship.
Service.
+

21. Basic Offer:
Complex Offer:
Level 2 Supplier: Different Financial Model Was Even Better!
LEVEL 1 SUPPLIER
LEVEL 2
SUPPLIER
Supplier Operating Model
Product
Focused
Outcome
Focused
Rev
Mix
% PRODUCT
% SERVICES
Cost Structure
Target
Profit
% COGS
% COM
% COSa
% G&A
% EBIT
% COSe
21
Make.
Sell.
Ship.
Service.
+

22. Basic Offer:
Complex Offer:
The Hard Line For Suppliers At Level 2
LEVEL 1 SUPPLIER
LEVEL 2 SUPPLIER
Supplier Operating Model
Product Focused
Outcome
Focused
STOP
Complexity.
Friction.
Cost.
Time.
=
Not
Scalable
22
Make. Sell. Ship.
Service.
+

23. But Now…This
23
2008 Q4, $248B
2011 Q4, $242B
$206B
$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
$240,000
$260,000
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
2008
2009
2010
2011
2012
2013
2014
-$7B Q4 to Q1
- $36B or 15%
- $140B/Yr
SOURCE: TSIA Service 50 Index

24. LEVEL 3 AND LEVEL 4 SUPPLIERS
B4B:
24
“B4B is an age where a
supplier achieves an outcome FOR
a business customer.”

25. Level 3 and Level 4 Markets: OEMs And Partners Are Gearing Up To Play New Roles
25
Basic Offer:
Complex Offer:
Optimize Offer:
Outcome Offer:
LEVEL 1
SUPPLIER
LEVEL 2
SUPPLIER
LEVEL 3 SUPPLIER
LEVEL 4 SUPPLIER
Supplier Operating Model
Product
Focused
Outcome Focused
Great Product
Great Product
Product
Attached Services
New Ways to Save Customers Money and Improve Their Business Outcomes

26. As Market Demand Shifts To Level 3: New Roles Formerly Done by IT or Not At All
26
Basic Offer:
Complex Offer:
Optimize Offer:
Outcome Offer:
LEVEL 1
SUPPLIER
LEVEL 2 SUPPLIER
LEVEL 3 SUPPLIER
LEVEL 4
SUPPLIER
Supplier Operating Model
Product Focused
Outcome
Focused
Great Product
Great Product
Product Attached Services
Great Product
Product
Attached Services
Operate and Adopt Services

27. As Market Demand Shifts To Level 4: Monetize Huge Volumes By Delivering Customer Outcomes Easily and With Low Risk
27
Basic Offer:
Complex Offer:
Optimize Offer:
Outcome Offer:
LEVEL 1
SUPPLIER
LEVEL 2
SUPPLIER
LEVEL 3 SUPPLIER
LEVEL 4
SUPPLIER
Supplier Operating Model
Product
Focused
Outcome Focused
Great Product
Great Product
Product
Attached Services
Great Product
Product Attached Services
Operate and Adopt Services
Extreme
Automation Platform

28. The Great Race is On
28
Profitable Legacy Model
B4B Company
(XaaS 2.0)
Commoditized Legacy Model
XaaS 1.0
OEM Scenarios
Demand for New Consumption Models
Profitability of Core Offering

29. Sales in the XaaS Model
29
Selling into OpEx Budgets
Selling into CapEx Budgets
Business Expertise
Technical Expertise
Vertical Territories
Geographic Territories
Selling Results
Selling Features
Outcome-Based Contracts
Fixed-Price Contracts
Business Process Slides
Demoing Features
Land and Expand
Large, Multi-Year Lock-In
The Business Buyer
The IT Buyer
What’s Hot?
What’s Not?

30. Level 1 Suppliers Focused On:
•
Make.
•
Sell.
•
Ship.
30

31. Level 3 and 4 Suppliers Now Preparing To Talk About Customer Outcomes
31
Outcome Based Service Portfolio
Consumption
KPIs
Financials
Type 1
Type 2
Type 3
Users Transactions Terabytes Instances Features Minutes
# of Customers
Units Produced
Employee Productivity
Equipment Productivity
Customer Sat
# of People
Efficiency KPIs
Percent Compliance
Spend Per Customer
Cost per Transaction
Reduced Labor Cost
New Offer Revenue

32. The Yin-Yang of Outcome Offers
Building a Product Offer:
1.
Product: What can this product do?
2.
Services : What services will the customer need with this product?
–
Implementation, Training, Ongoing Support
3.
Features and Benefits: Why should the customer buy these services from us?
–
Expert staff that know the technology
–
Reduce implementation time and risk
–
Optimize uptime
Building an Outcome Offer:
1.
Business Challenge: What is the business challenge your customer is facing?
2.
Outcome Metrics: How does the customer know they have solved the business challenge?
3.
Capabilities: What are the capabilities required to meet the challenge and achieve the outcome?
4.
Processes: What are specific processes need optimized to support the capability?
5.
Performance Metrics: How will you measure progress toward the outcome?
32
Product + Service
Outcome Dependencies

33. What Does the “Shift Right” Mean to IT?
•
Pivot toward the business users and new innovations
•
Trusted advisors to the business users, then trusted sourcers (both among suppliers and vs. internal IT)
•
Relegate more of “operate” and “adopt” to suppliers
•
Shift supplier evaluation criteria away from features and toward their operating model capability
•
Hard choices about IT’s role and size
33

34. RESULT OF THE GRAND BARGAINS: Suppliers That Satisfy CIOs
34
Low Cost and Variable Costs of Usage
State-of-the-Art Security
Range of Purchase Models
Innovations That I Did Not See
Ability to Deliver Outcomes
Fast and Agile
On-Prem, Hybrid, Cloud Options
Flexible Data Constructs
Technology Enabled
Mastery of Domain

35. What Changes? A Lot.
A Calm, Rationale Approach to Transformation

36. 27 Things That Level 3 & 4 Suppliers Must Re-visit
Offers
Markets
Partner
X Product
Land
Sales
Financial Models
GTM
…aaS Operations
Pricing
Value Prop
Offer Type
Trial Mktg
Processes
Org & Skills
User Exp
Dev Capab
Connected Prod
SaaS 2.0
Revenue Mix
Offer Margins
Land GTMs
Expand GTMs
Service GTMs
Ext Auto Plat
Cust Success
Expand Sales
Partner Eval
Partner Enabl
Partner Mgmt
Target Buyer
Segment Model
Comp. Analy
In Use Mktg
Services
Quote-to-Cash

37. New Capabilities Must Be Added, Some Must Be Repurposed, Others Eliminated
37
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✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
CEO
R&D
Manufacturing
Sales
Services
Marketing
CFO
✔

38. The Technology Industry
Products
Hardware and Software
Technology Services
Product Services
Technical Design
Implementation
Integration
Offsite Tech Support
Onsite Repair
Technical Training
Traditional Level 2 Supplier Product and Service Offers
L2
L1

39. The Technology Industry
Products
Hardware and Software
Technology as a Service
Technology Services
Product Services
Technical Design
Implementation
Integration
Offsite Tech Support
Onsite Repair
Technical Training
Optimize Services
Operational Services*
System Monitoring
Hosting
Configuration Management
Multi-Vendor Management
Adoption Services
Adoption Planning
Process Consulting
Consumption Monitoring
Consumption Optimization
Information Services
Data Maintenance
Data Analytics
Data Supplementation
Outcome as a Service
Outcome and Risk Management
Success Science
Success Reviews
Success Variables
Success Plays
Outcome Bundles*
Full Automation
*Also known as Managed Services
New B4B Services Are Coming From Tech Companies
L2
+L3
+L4
L1

40. A Changing Landscape
•
Tech Companies Will Rapidly Migrate Toward Services
•
They Will Combine Technology (on-prem and off) and Services (on- prem and off)
•
Pure Service and L3/4 Product Companies Will Compete
•
New Supplier Operating Models Are Still…New!
–
What Are the New Financial Models?
–
What Are the New Capabilities?
–
Who Does What?
–
Direct AND Indirect Customers
•
We Believe the Transformation Is Manageable – and Vital
40

41. The New XaaS Normal
41
What’s Out?
•
Complex technology
•
Asset purchases
•
Install, integrate, upgrade
•
Maintenance costs
•
Hard-to-use software
•
Central IT control
What’s In?
•
Simple
•
Pay for results
•
Business value
•
Turn on, turn off vendors
•
Higher volumes
•
End-user preference

42. Thank You!
J.B. Wood CEO TSIA
Lead Author: B4B
ISG
September 2014