With the rise in popularity of cloud-based business models, many technology companies are feeling increasing pressure to transform their businesses to focus less on products and more on services. Fortunately, you don’t need to replace your traditional product-based business model entirely, but instead, find ways to add profitable “as-a-service” offers into the mix. In the book B4B: How Technology and Big Data Are Reinventing the Customer-Supplier Relationship, you’ll be taken through a narrative of how shifts in the industry are leading to a simple yet crucial conclusion: while the product B2B model was designed to sell things to customers, the new B4B model is about delivering outcomes for customers.
What is B4B?
The spending habits of customers are changing in a big way, where technology suppliers are not only expected to continue providing excellent products and services, but to also provide value from their investment by facilitating customer outcomes. Your business may soon find that a significant percentage of your revenue will come from service subscriptions and transactions, which ultimately are closely tied to customer outcomes. So, how do you prepare for this drastic shift in your business model? In B4B, you’ll learn about a new business framework that technology companies are using as a guide to transition their value proposition from being product-focused to customer outcome-focused with the help of value-add services in order to defend, protect, and grow their revenue.
Here’s an excerpt from Chapter One of B4B – “The Origins of B2B”:
B4B Excerpt: Suppliers Get into the Game
Now, something is changing, at least in the world of B2B high-tech. New pricing models are taking the industry by storm, as shown in Figure 1.13.
They have different names, such as software as a service (SaaS) or managed services, and different forms, such as pay-per-user, pay-per-transaction, or pay-per-unit rates (the little dots in Figure 1.13), but they all have one thing in common: The customer only pays for what they consume. There is even talk about revenue-sharing or gain-sharing arrangements. These pricing models mean that the customer pays much less up front, sometimes nothing at all. The supplier only gets to bill the customer when the customer utilizes the product.
This shift away from purchasing with capital equipment budget dollars in favor of purchasing by the drink using operating budgets is shocking in its speed and pervasiveness. It changes the entire deal profitability profile for a supplier. Rather than being profitable from the moment the product is delivered to the customer, suppliers might not realize profitability on a deal for months or years. Thousands of suppliers are now facing the same risk-and-reward profile that their customers are (see Figure 1.14).
At that point, something magical happens. A switch is flipped in the collective strategy brain of the supplier. The consumption gap is no longer a theoretical problem shouldered by customers. The consumption gap is now a direct threat to the suppliers revenue and profit. The totem pole begins to ask itself new questions, to reconsider what is strategic. The result is that maybe for the first time in more than 125 years, both parties in the B2B partnership are open to a new model in which the supplier is involved in the success of its customers permanently and in real time.
This opening chapter started with one key premise: The operating model used by business technology suppliers is about to be revolutionized. After a long and successful run, B2B 1.0 looks antiquated. We have simply gone too long without any real innovation in terms of the agreements and roles that underpin the B2B economy, especially in the high-tech and the exploding number of near-tech industries. The increasing complexity quotient of products is the straw that finally broke the camel's back. Customers are looking for new ways to achieve business value with their strategic partners. But how would these new models work? What would they look like? What is really about to happen to B2B?
Want to Learn More About B4B?
"B4B is a groundbreaking look at the future of the tech industry. Customers have a whole new set of expectations, buying outcomes from vendors with skin in the game and valuing simplicity over complexity. B4B is a guidebook to position your company for success in this new world." – Lanham Napier, CEO, Rackspace
Editor's Note: This post was originally published on September 12, 2013, and has been updated with current information.
About the Authors of B4B
J.B. Wood is the president and CEO of the Technology Services Industry Association (TSIA). He is a frequent industry speaker, author of the popular books Complexity Avalanche: Overcoming the Threat to Technology Adoption (2009), Consumption Economics: The New Rules of Tech (2011), and B4B (2013), and has appeared in Fortune, The New York Times, The Wall Street Journal, and other leading publications. Through TSIA, Wood works with the world’s largest tech companies on strategies to extend their innovation platform beyond the lab and into the customer experience.
Thomas Lah is the executive director of TSIA. Since 1996, he has helped a broad range of companies establish or improve their professional services organizations and is known worldwide for his incisive analysis, strategic thinking, and creative solutions. He is a sought-after industry speaker and has authored several books, including Building Professional Services: The Sirens’ Song (2002), Mastering Professional Services (2005), and Bridging the Services Chasm (2009), Consumption Economics: The New Rules of Tech (2011) and B4B (2013).
Todd Hewlin is managing director at TCG Advisors. He draws on his background as a strategist, investor, and operator to help companies achieve breakout growth. He is a noted author and speaker on growth strategy with articles published in Harvard Business Review and McKinsey Quarterly. Todd is co-author of Consumption Economics: The New Rules of Tech (2011) and B4B (2013).