Every day I find myself reading about the developments happening in business-to-consumer (B2C) pricing.

Here’s a sample of those that jumped out recently:

• Uber announced a feature that would allow more price-sensitive customers to wait longer for rides in exchange for cheaper fares.
• Disney recently pursued a similar approach, creating a “sneak peek” package of its new Pixar Pier for park-goers that are willing to pay a premium price point for the experience.
• The Massachusetts Bay Transportation Authority is piloting surge pricing across parking lots and creating event pricing for subway riders.

These developments highlight the growing momentum behind providing dynamic, value-based and outcome-based pricing models, a movement being driven by companies’ desires to provide personalized customer experiences at scale.

While this push has been most publicized and noteworthy in the B2C world, driven by the likes of Uber, Netflix and MoviePass, it also consistently permeates the complex business-to-business (B2B) IT products and services world that we focus on. “How do we shift from a cost-plus to value-based pricing model? Are companies really doing outcome-based pricing? Who is doing it well, and for what types of customers? How?” These are common questions vendors are trying to sort through as they change their businesses.

Often, we’ve heard that IT vendors are serious about making outcome-based pricing models work, but the customers are putting the brakes on these types of arrangements. Customers will ultimately balk at the variability and risk of an outcome-based arrangement at some stage of a deal negotiation and push vendors to offer predictable fixed-price engagements. Customers like the idea of not paying when an outcome is not achieved more than sharing the benefit of an outcome that is met, and somewhere in that trade-off the fallback becomes a traditional contractual arrangement.

What’s interesting is that based on recent research, this customer hesitance seems to be abating. In our 2H17 Digital Transformation Customer Research, we asked 165 global enterprises that are undertaking digital transformation initiatives to identify the pricing structures they’ve experienced, and outcome-based pricing emerged as the most common model globally.

As my colleague Jen Hamel points out in the report, “This indicates vendors have become more flexible and creative with pricing to convince clients to take the DT [digital transformation] leap but may see delayed ROI from DT skill investments as revenue depends on project success.”

As digital transformation continues to take root, the question of how vendors can shift to outcome-based pricing will only be asked more frequently, particularly as changes in the timing of revenue recognition from engagements impact vendors’ flexibility around resource investments. We are eager to watch (and to report) as best practices develop and new models emerge and would love to hear about what others think on this topic.

Drop a comment here or email me at [email protected].

 

Hardware as a Service — or maybe you call it PCaaS, DaaS or XaaS — is basically referring to bundling some type of hardware (e.g., phones, PCs, servers) with life cycle services and charging a recurring fee over a multiyear contract. The customer never really owns the hardware, and the vendor takes it back at the end of the agreement.

Sure, it’s not a new concept. But the solution hasn’t exactly taken off like a rocket ship, either. So, is it going to? Maybe. Its initial speed may be more like a Vespa than a SpaceX Falcon, but there are a few things working in its favor.

Why do buyers want it?

• Retiring hardware is a huge pain. I have talked to IT leaders who have literally acquired warehouse space solely to store old hardware they have no idea what to do with.
• Making it easier to stay up to date with tech. Management can no longer deny the negative impact on morale brought by an unattractive, slow and/or unreliable device.
• Automation & Internet of Things (IoT) usher in new capabilities. Who doesn’t want to make managing hardware easier? Hardware as a Service is basically IoT for your IT department. Device management features like tracking device location and health are key functions of many IoT deployments and is a core selling point of Hardware as a Service offerings.

Why do vendors want to sell it?

• Business models are changing. That darn cloud computing had to come along and change expense models, not to mention make it easier to switch between vendors. From Spotify and Netflix to Amazon Web Services and Salesforce, “as a Service” is second nature to IT buyers in both their personal and professional lives.
• Creating stickiness. Hardware is more often perceived as “dumb” with the software providing the real value. If you’re a hardware maker (or a VAR), you need to make the buyer see your relationship as one that’s valuable and service-oriented versus transactional.
• Vendors desire simplicity. Most vendors will tell you they have been building similar enterprise service agreements on a one-off basis for years. These new programs will hopefully create swim lanes to make it faster and easier for partners to build solutions.

Buyers are used to monthly SaaS pricing models, but that’s not really what creates the main appeal for Hardware as a Service. Buyers really want the value-added services and fewer managerial headaches.

So, how’s it going?

As someone who manages several research streams, I get to peek at results from a lot of different studies. Here are a few snippets of things I’ve heard and seen in the last month or so.

• Personal devices: It certainly seems like there’s the most buzz around PCs, with Dell, HP Inc. and Lenovo all promoting DaaS offerings. I have also heard from enterprises doing initial DaaS pilots with as many as 5,000 PCs, but we seem to still be in very early stages of adoption. Both PC vendors and their channel partners are beginning to report “legit” pipeline opportunities tied to DaaS.
• Servers: Either outright purchasing or leasing servers is still the overwhelming choice of purchase method for about 90% of IT buyers recently surveyed by TBR. Perceptions that an “as a Service” model will be more expensive in the long run is the main customer concern to date that vendors will need to address via emphasizing the value-added life cycle services.
• Hyperconverged infrastructure (HCI): A bundle of hardware and a services bundle? This is the bundle of bundles! Not too many HCI vendors are openly promoting an “as a Service” pricing model at this point, but 80% of current HCI buyers in TBR’s most recent Hyperconverged Platforms Customer Research indicated they are interested in a consumption-based purchasing model, particularly to enhance their scalability. About 84% of those surveyed are using HCI for a private or hybrid cloud buildout, so maybe a more cloud-like pricing model make sense. Make no mistake, interest is not synonymous with intent, but it’s safe to say these buyers are at least paying attention to their purchasing options.

My general verdict is that things are still moving at Vespa speed. PCs have a head start over data center hardware based on the concerted go-to-market efforts of the big three OEMs and a consumption model that more closely aligns with the consumer services we’re used to. The second half of this year will be an interesting proving ground to see if the reported pipeline growth is converted to actual customers. Depending on how that goes, maybe we’ll see the data center guys making more serious moves in this space.

What do you think? Add a comment or drop me an email at [email protected].