Consumerization of IT: Is the Traditional Enterprise Software Sales Model Dead?
Imagine you are the CEO of a software company and one day you receive a call from a new customer congratulating you on winning a million dollar RFP. A great day for any company and a great reward for what was likely a long drawn-out sales effort. Now imagine that you had never spoken with the new customer before they called to reward you their business. You had not responded to an RFP and you had not made a single sales call to the decision-maker. The story may sound too good to be true, but this is a real account I heard from an executive at a fast growing software company.
This isn’t an isolated case. The secret to this success lies in the company’s go-to-market strategy. They have embraced a high velocity, low friction sales model capitalizing on the consumerization of IT. Instead of selling to the IT organization, they are leveraging consumer marketing techniques to appeal to end-users directly. Through innovative marketing, a straightforward easy to use product and free trials, they build up a devout group of users who ultimately become advocates within their respective organizations. These advocates effectively become the company’s best (and cheapest) sales people. In the example above, a substantial number of end-users at the customer had been using the product, and deriving benefit from it, for some time. They knew the strengths and weaknesses of the product intimately – far better than they could have gleamed from an RFP response or sales pitch – and when the time came to make a decision the answer was obvious.
As an entrepreneur, the leverage this model affords is very compelling. Unlike the large up-front investments required to scale up expensive sales forces in traditional software models, this new class of business tends to be more capital efficient and, when it works, highly profitable. It also expands the addressable market for most products to include small and medium-sized businesses – instead of just large enterprises – which can now be sold to profitably. Of course, it isn’t applicable in every industry (e.g., telecom software sales), but the trend is undeniable.
However, a lot goes into building this new breed of software company and we see many companies struggling with a number of key questions. How do you best drive customer awareness, leads and registrations? How do you balance product thoroughness with ease of use and simplicity? How do you minimize the cost of supporting a free user? Do you focus on small businesses or can you reach upstream into medium enterprises and even large corporations? What is the best business model to employ – free trials, premium upgrades or usage based models? While there is no one right answer to these questions, it is clear to us that a new class of entrepreneurs will successfully navigate these uncertainties and build meaningful and lasting companies.
From my point of view, the most interesting question is how far can this model penetrate and transform enterprise sales. It is early in the evolution of this market, but several companies such as SolarWinds and Intuit have demonstrated its potential. Does this success spell the eventual end for traditional enterprise software sales as we know it?