In my infographic, “Navigating the World of Recurring Revenue Offers,” I outlined 6 key steps to thriving in today’s rapidly changing tech market. In my first blog of this series, I covered the many attractive aspects to customers of consuming enterprise technology on an “as-a-service” (subscription) basis. Today, I’m going to talk about the flip side of the coin—why some customers might object to the concept.
Customer Concerns About the Cloud by Industry
As I covered in my last blog, there are lots of extremely compelling benefits for customers who are considering subscriptions versus purchasing assets (hardware, software, or equipment). But the decision is not without hesitation, and often for very good reasons. What’s so interesting is how predictable their concerns are.
Many countries have regulated industries where data privacy laws make it very difficult for data to reside in the Cloud.
Certain industries are more reluctant to having data hosted off-prem, which is a cornerstone architecture for all cloud-powered XaaS offers. Often, that reluctance is based on legal compliance. Many countries have regulated industries where data privacy laws make it very difficult for data to reside in the Cloud. Importantly, there is often a perception vs. reality gap where end customers assume—sometimes erroneously—that putting data in the Cloud would automatically violate demanding industry regulations.
This is frequently a very nuanced situation where there are, in fact, many options available to them to have some or all of this regulated information in the Cloud. It is easy for XaaS vendors to know which industries in which countries face such regulations and they must be prepared with their unique scheme to put these objections to rest.
Customer Concerns About the Cloud by Role
In addition to industry regulations around data, certain verticals have moved more slowly to the Cloud and managed services than others. Manufacturers, as an example, often hesitate to have information about new product designs out in the Cloud. They might also not want their managed services suppliers to have access to their proprietary manufacturing processes, and so they hesitate at signing managed service agreements which might include on-site responsibilities for the vendor. The worry is that intellectual property (IP) assets could be seen or stolen. Woven throughout all these industry cases are security concerns. While this is an issue that may never go away, it is of more pressing concern to certain industries and government sectors than others, but these are easy to identify in advance.
Certain job roles are also more hesitant to subscribe to (vs. purchase) technology. One of those might be the prospective buyer’s CFO who has read articles or experienced firsthand that the total cost of subscriptions can actually exceed the total cost of ownership over time. In general, most enterprise XaaS (vs. asset purchase) break-even horizons are roughly 4-6 years. That means customer buying influences from the finance side can raise the point that owning may be cheaper in the long run. They may also have a preference to account for technology as Capex rather than Opex. So, you can expect finance to have a strong opinion or concern about purchasing technology as a subscription.
Since IT is responsible for everything from corporate IT security, to integration, to costs of the company’s technology, they naturally see making it easy for departments—or even individuals—to subscribe to a XaaS vendor’s service as a nightmare.
How IT Departments Address Increasing Adoption of Cloud Technology
Another job role who may voice concern about cloud-based technology subscriptions are IT managers or executives. This group can have both public and private concerns. Publicly, they can raise worries over rampant DIY technology decisions by the business side of the house. Since IT is responsible for everything from corporate IT security, to integration, to costs of the company’s technology, they naturally see making it easy for departments—or even individuals—to subscribe to a XaaS vendor’s service as a nightmare. They are going to shine a bright light on these potential problems and their severity will be weighed against the value of the solution to the business side. The final decision maker will have to balance IT’s concerns with the business’ need for the value and arrive at a decision.
Fueling some of IT’s hesitation could privately be around the threat that cloud subscriptions and managed services can represent to the long-term power base of their IT department. Let’s face it, most of IT’s budget and people are in place to own and operate the hardware and software it takes to run the business. Handing chunk after chunk after chunk of that responsibility away to vendors is definitely going to sway their thinking, at least in some cases.
Despite Concerns, Cloud Subscriptions Are Still a Good Idea
Despite these customer concerns, the high-velocity growth of enterprise XaaS subscriptions and managed services prove that far more customers are reaching the conclusions that the benefits outweigh the costs. But, vendors must understand and anticipate the objections they are going to encounter. Fortunately, these objections are predictable and their retorts are reusable, so get your Sales teams ready!
In my next blog, I'll pick up the discussion from the standpoint of the vendors. What is the good news and the challenging news from their perspective?
Read more posts in the "Recurring Revenue Journey" series:
About the Author
J.B. Wood is president and CEO of TSIA. He is a frequent industry speaker and author of the popular books, Complexity Avalanche (2009), Consumption Economics (2011), B4B (2013), and Technology-as-a-Service Playbook: How to Grow a Profitable Subscription Business (2016), and has appeared in leading publications, such as Fortune, The New York Times, and The Wall Street Journal. He works with the world's largest technology companies on strategies to extend their innovation platform beyond the lab and into the customer experience, particularly in the age of cloud and managed services.