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Moving business from projects to annuity

Reading the newspaper,  I recently came across the term „confirmation bias" again. Spoken simply, it describes our tendency to interpret new information solely in a way to confirm existing convictions.
Information not corresponding with present conviction is filtered and packed away instantly. Hard to get away from that.

 

We at NetApp see a significant increase in the demand for IT as service. This tendency fosters a growing urgency to evaluate the impact of possibly moving parts of your business model from transactional to annuity base, if you haven‘t yet done so. I assume you already know what I am talking about. Service focused customers are not a future scenario, but reality. 30% to 40% of today’s customers RFPs include service components. Three years ago, this number was close to zero.

 

As alternatives, there might be two valid options to consider: IT self-supplied services for the customer – and (white label?) solutions from third party Service Providers.
Taking a decision between these two will mainly be based on three criteria:

  • Your value proposition
  • Your structure of customers
  • Your existing and evolving relationship with vendors.

No matter what decision you will take, proper financial planning and management will be key. While securing margins today as part of each transaction in traditional business, in the future you have to be prepared to secure the same margin from a growing, but initially small stream of annuities. At the end of the day smartly optimizing your financials will become a key parameter in the world of annuity-based business.

Your view on this is  very welcome. I‘m all ears.

Comments
on ‎2013-03-04 08:02 AM

Interesting post from Thomas. It is true that recent years have seen an increase in IT as a service. However, the solution does not bring the same value to every customer. I have seen many examples of large organisations embarking on this journey, only to be dissapointed a few years later.

The vanilla flavoured service did what it said on the box (in best cases) but did not give them the agilty they were looking for.