When I started my career in broadcast technology I wrote software for a router manufacturer, Pro-Bel. The company specialised in custom solutions, a router that had any combination of inputs and outputs, with an associated control system and panels also designed to a customer’s specific requirements. The last item on a Pro-Bel quotation was “Software as required – FOC”. Undefined, unlimited software development free of charge, hard to imagine in our increasingly software-centric world today.
Of course, the price and margins of the custom hardware made the economics work then, but it also led to a culture of doing whatever the customer wanted, and this has been a legacy that much of the media technology industry has struggled to move away from.
The example above typifies the way many businesses operated in the ‘80s, ‘90s, and beyond, customer-led project businesses that lived the mantra “the customer is always right”. The margins in the businesses allowed extraordinary levels of flexibility in accommodating customer requests.
Fast-forward to today and suppliers are all striving for a different relationship – solutions are increasingly standard product software running on commodity IT hardware. The healthy custom hardware margins have gone, and while the software has high gross margins it also incurs high overheads in a business to develop and support it professionally.
This naturally led to the introduction of support contracts, at the time this was a tough transition in a market where support was free and hardware warranties of 10 years weren’t unheard of. The reaction of many customers was of course why should I now pay for what I’ve traditionally had for free?
Even today many businesses are struggling to justify and charge support at the levels seen in the IT sector – 20 per cent plus, with 15 per cent being more typical and in some cases less than 10 per cent for media technology suppliers. But this article isn’t about charging for support, there is a more profound shift happening that businesses need to understand and grasp.
Increasingly software businesses are moving to subscription-based licensing, famously Adobe made this transition and set the stage for many more media technology companies to adopt subscriptions. The benefits businesses seek from software subscription is a level of predictability in future earnings that simply isn’t possible with capital project-based procurement. However, the relationship with the customer also changes…
When a customer makes a capital purchase they will amortise the cost of the purchase over several years, and in effect are committed to the system they’ve purchased for at least that period. The support provided by suppliers is predominantly reactive, waiting for the phone to ring when there’s a problem, then engaging with the customer to address the problem. When the system comes around for renewal in most cases no matter how good the relationship between customer and supplier, the customer is likely to go back to the market with a full evaluation and procurement process.
With subscription, the relationship between the customer and supplier is more engaged on day to day basis. This is because without the amortisation period there is no implicit economic retention of the customer, so a customer in theory could switch supplier at any time. The companies that will be most successful with this new relationship are the ones that pivot from traditional reactive support, to a proactive Customer Success model.
Customer Success is the principle of engaging with your customer and ensuring that they continuously have a positive experience of your service or system. The engagement may be regular reviews ensuring they are getting maximum return on their investment, or anticipating issues before they occur. The aim is to ensure they keep their subscription going, and of course, an ongoing conversation is an opportunity to upsell new features and capabilities. This means we’re not looking for altruism from suppliers, it is about customer retention, perhaps a better term would be ‘Mutual Success’.
Whether it’s at tradeshows or through other marketing, the communications from media technology suppliers are predominantly focused on technology, for example, AI will certainly be the talk of the show at IBC. I will be interested to see the companies that shift the conversation to the wider relationship with their customers, and how they will engage to ensure that mutual success.
