Understanding the new revenue landscapes pioneered by Silicon Valley is worth educating yourself on, especially if you are considering ways to grow your systems integration business. It will require wrapping your mind around new (for security) ways of supporting customers. Photography ©istockphoto.com/VLADGRIN
Who has more acronyms … the IT world or the federal government? Actually it’s the federal agencies’ IT departments. They certainly don’t speak in any sentence structure I learned from Sister Mary Scary during my misspent parochial youth. Levity aside, understanding the new revenue landscapes pioneered by our friends in Silicon Valley is worth educating yourself on these days, especially if you are considering ways to grow your systems integration business. It will require wrapping your mind around new (for security) ways of supporting customers.
IT World Establishes a New Model
The shift to network-based solution sets the past 10 years has been challenging in all respects, including sales, management, technology and most importantly disrupting physical security business models. When you transition business models away from product, installation, service and maintenance into a realm driven by software, the world changes in a hurry for physical security system integrators.
The business model of software revenue was virtually invented by Bill Gates and Steve Jobs in the 1980s. The idea of a software “license” was unique for its time and certainly flew in the face of the IBM philosophy and belief that the money was in hardware. This was evident when they relegated the “minor” task of writing a disc operating system for their new personal computers. Talk about a “missing the boat” moment in technology history. The idea of charging for and then managing software key codes was certainly not an easy one, but when the strategy is to rapidly capture enormous market share you don’t have to be that good in math to figure out the power of this business model.
Cisco ushered in the next generation of this great business model by not only charging a premium for its hardware platforms, but building enormous market share by charging for licensing and ongoing software maintenance support. I was introduced to the concept as a newbie IP video systems integrator in 2002 when I supplied customer-requested Cisco switches and didn’t realize there were strings attached in the form of software maintenance agreement licenses. Fortunately my customer, a large engineering college in Atlanta, had a business relationship with Cisco and these licenses would be included. This saved my margins, pride and contributed to my education.
Software Shift Disrupts Security
Let’s dig in and cover some basic definitions (apologies in advance to my more sophisticated IT friends) to clear up our communication channels.
A software license agreement (SLA) is familiar to anyone using a computer with Microsoft Windows and the Office application suite. Pay for the ticket and take the ride. One rider per license, please, unless you implement multiple seat licenses.
This translated into our world when IP video started streaming across networks and was managed by application software. Instead of a fixed one-time cost, software companies expanded the pie a bit to the “edge of our seats” by licensing each discrete stream of IP video. Pretty innovative, right? Oh yes, and pretty pricey as well.
This new business model certainly presented some challenges to “old school” sales teams that had to explain to their customers that they had to pay for hardware, installation and the software license to run the system; and, oh yeah, another license for each video stream. This dilemma certainly slowed the rapid migration to IP video five years ago, placing a speed bump in the road. In recent years, the competitive pressures have made the license per video stream digestible for most customers.
The service level agreement (SLA) is typically between an application service provider (ASP) and an end user that guarantees a specified level of service, support options, what software will be provided and pricing options. There are five categories of ASP as defined by ASPnews.com:
- Enterprise — High-end business applications
- Local/Regional — Applications for smaller businesses
- Vertical markets — Health care, security, etc.
- Volume-based — Small business prepackaged applications
- Specialist ASPs — Web-site services
How Software as a Service Works
Let’s dig a little deeper into the rabbit hole to talk about software as a service (SaaS), which transitions software developers from a shrink-wrapped CD/DVD set to a whole new planet.
When I buy a software product, I will need a backup CD, instructions and some tutorials to help me get going, but from there I am pretty much on my own. This means the software developer’s phone won’t be ringing off the hook and this helps lower operating costs. OK, I can pay for some tech support if I choose, so there is some back-up and support. However, SaaS really needs to marry SLA with its SaaS offering to make any significant penetration in the market. Setting customers’ expectations is different when you are on the Web, isn’t it? You expect 100% availability with no wait and no headaches.