Brand View: As software prices continue to drop, vendors must find new ways to differentiate themselves
Twenty years ago, software was a major capital expense for most businesses. If you wanted email in the early 2000s, you'd pay between $30-$40 per user. Now, most companies pay around $10 per head. In a few years, email will probably be included free with the larger software platform the business uses.
So what's brought about this change? Although charismatic tech CEOs may often make news for their promises to "disrupt" (insert ANY industry name here), the long-term drivers of change in software are virtually identical to those of any other business: customer needs and expectations, increased competition, and improved technology.
As software prices continue to drop, vendors must find new ways to differentiate themselves. Piecemeal solutions from different companies (each with separate provisioning and administration requirements) are falling out of favour, instead replaced by all-in-one suites or industry-specific verticals.
And as more and more businesses are finding out, integrated offerings provide more than just cost (and time) savings; companies on unified platforms see increased efficiency in everything from customer support and sales to internal communication and decision making.
The complexity or user-adoption of a given application does not determine how much a company can charge for that software. Email is actually fairly complicated to build and maintain, yet email pricing reflects the opposite. Chat is another example of this phenomenon. Despite their increasing sophistication and functionality, companies have struggled to monetise standalone chat platforms - often offering them as free email add-ons instead.
It's clear that today's enterprises don't want to pay for individual software applications. Instead, they expect to pay for software plus service plus support plus convenience plus security.
Vendors have recognised this industry shift, if slowly, and are developing software or acquiring companies to fill the gaps in their offerings. Among large enterprises, where acquisitions are too costly, businesses are relying on close partnerships to extend the depth and breadth of their services. (Adobe, Microsoft, and SAP's Open Data Initiative, for example.) Companies that have already built out multichannel platforms that can handle multiple tasks across departments have a leg up as the industry moves in this direction.
A good way to understand what's happening in software is to look at the music industry. Disruption has affected pricing and distribution models in the music business in much the same way it is beginning to in the software industry.
Modern music distribution began, like software, with a physical product. Music was sold in the form of LPs, cassettes, then CDs. These commodities were expensive for customers and lucrative for those who controlled the means of production. In 1997, the first digital single was sold on the Internet, irreversibly changing both the price and distribution model for the industry. (For anyone interested, the first digital release was Duran Duran's Barbarella - not a good song but a trailblazer in one respect).
Once music became digital, piracy abounded. The same of course was true in software, largely the result of high prices. Now with streaming services, the MP3 download/upload business model has been disrupted. Like much of software, music is by-in-large stored, hosted, and made available to customers from the cloud.
For products distributed on the cloud - be it software or music - customers aren't actually buying or owning anything tangible. This is obvious. Instead, they are being given access. It's that difference that has led to subscription models. Whether for business software or music services or streaming video content, customers are paying for access and ease of consumption (on the consumer side, the platform with the easiest purchase and consumption model tends to win - for example Amazon Prime, Kindle, or Netflix). Now that access has been monetized and competition is driving the price down, the next level of value for the vendors is customized journeys. (Think customized software industry verticals for, say, commerce or marketing, curated playlists, or exclusive content).
Software used to cost a lot because it used to cost a lot to develop software. But as access to software has increased, so have the possibilities for consumers. Low- and no-code platforms mean two coders in a coffee shop can build a CRM that runs on the cloud for minimal expense. This is transforming the value proposition of software; it is no longer just about what an application does, but about what the platform enables a business to do.
Software vendors can learn lessons from the ways the music and entertainment industries have (or haven't) pivoted to meet changing consumer demand. In those verticals, customers have come to expect immediacy, ease of access and smart customization. The same sea-change is coming to software, and vendors that want to survive must anticipate and meet the needs of the customer with comprehensive and flexible offerings.
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