Coming out of the recent Technology Services World conference in Las Vegas, my colleagues and I were struck by how pervasive a few common themes were. It seemed as though every executive we met and every panel or keynote we listened to were all grappling with similar topics. For those in the tech industry that weren’t able to attend, following is a quick summary of five key takeaways:
1. Services Under Attack from Two Fronts
It’s no surprise that when a bunch of Services executives get together, they are going to kibitz about Services. That said, the aura around the conference was one of palpable angst. Services executives are under pressure around both top and bottom lines. On the revenue side, traditional implementation revenue is under pressure given the move to subscription and changing customer expectations around faster, lower cost delivery. Replacing that revenue with new pre- and post-implementation service offerings and higher renewals is an imperative, but operationally hard to execute. In parallel, there is continued emphasis on Services margin which is exacerbated by the revenue challenge.
2. Hybrid Environments Are Here to Stay
Most companies are somewhere along their Cloud journey, augmenting the existing on-premise business with new Cloud offers, including XaaS, hosting, etc. While Cloud is providing a source of growth and margin, a large base of legacy on-premise customers persists. Cloud delivery may have started as a skunkworks experiment, but it has now reached a scale where companies are working through how to integrate offers, service delivery, roles, etc. in a world with Cloud, on-premise, and hybrid customers.
3. Second Wave of Automation Is Upon Us
Services organizations are largely through the basics of automation, e.g., PSA (Professional Services Automation), Support case management, etc. More and more attention is now being paid to driving the next wave of automation—either increasing leverage from existing systems, or exploring emerging technologies around communities, remote connectivity, analytics, etc.
4. Customer Experience Is Back in Focus
Despite all the buzz around Customer Success, companies are still operationalizing it in a variety of ways, ranging from relabeling the PS organization, to new premium support offers, to new Customer Success Manager roles focused on expansion and retention. As companies debate how to internalize Customer Success, they are shining a light on the end-to-end customer experience and the numerous roles, organizations, and processes that touch the customer. While the imperative for improvement in this area is well recognized, finding the right path forward seems to be the struggle.
5. Cloud Economics Still Up For Debate
A lot of attention was given to the “new” economic paradigm of XaaS and subscription-based pricing, and the implications on margins. Many point to the fact that pure-play SaaS players are unprofitable as an indicator of the pending economic challenges for all tech companies. We tend to side with Tien Tzuo, CEO of Zuora, who shared the view that these SaaS pure-plays are actually achieving decent gross margins, but are making a strategic decision to reinvest dollars in new customer acquisition (i.e., aggressive growth) versus delivering better margin performance. If and when the market decides to stop rewarding aggressive growth, we expect to see that balance shift.
It is clear from the themes above that this continues to be a time of great change and challenge for Services. At Waterstone, we believe that while significant, these challenges can not only be overcome, but turned into opportunities for reinvention and growth.
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