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Enterprise Software Lessons: IT Services Keep Gaining Momentum

Yesterday, big data consultancy Think Big Analytics announced a 3M angel round led

by Daniel Scheinman with participation from WI Harper Group. Think Big Analytics specializes on providing professional services around the implementation of solutions powered by on-premise or big data technology stacks.

This founding round is another example of the increasing interest of VC firms in elite IT professional services firms that focus on hot enterprise software trends. Just a few years ago it was unconceivable for a top VC firm to invest on a professional services organizations. Lack or recurrent revenue, long sales cycles, scaling challenges etc were often cited as factors that conspired against the VC interest on these type of business models.

However, the rapid emergence of new technology trends such as big data, private clouds, enterprise mobility, security among others have slowly but steadily beginning to change those dynamics. Given the difficulties for IT organizations to implement these technologies on their own, professional services firms can enjoy of highly lucrative deals in areas that are making a huge difference in the enterprise.

In my opinion, this trend is only going to get bigger in the next few months and we are likely to see more boutique consulting firms raising different rounds of institutional capital.

 
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Posted by on February 6, 2013 in Uncategorized

 

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The Difference Between Winning Projects or Winning Customers

In previous posts I mentioned the fantastic times the IT services industry is experiencing with the increasing investment in technology areas such as big data, cloud or enterprise mobility. Regardless of this momentum, IT services companies still need to address some of the biggest challenges of their business model such as the long term commitment of customers and the ability to generate recurrent revenue. Even though the new times have brought new and creative models for generating recurrent revenue, the simplest way to achieve that remains converting isolated projects into long term customers.

Even though winning long term customers is the cornerstone of a successful IT services business, most professional services firm struggle to achieve a continuous conversion of isolated projects into strategic and long term relationship that deliver continuous values to both parties. To this day, most IT services firms still rely on the notion of an account manager as the main mechanism to establish a long term relationship with a customer.

In this traditional model, an account manager is responsible for generating a continuous pipeline of service engagements based on the customer needs. The problem with this model is very simple: while account managers can be relatively effective in the tactical and operational aspects they rarely deliver any value at the strategic level. To give an example, in the traditional model, the account manager will get involved after the customer has identified a specific project and needs to explore different options to execute that solution. However, the account manager would rarely be seen as a strategic advisory that can guide the customer to arrive to the best solution to the challenges. Because of the simple fact that strategic collaborations are more likely to evolve into long term relationships, IT services organizations commonly fail to obtain a seat at the table where decisions are made and are often seen as an effective arm to deliver a predefined project.

While the account manager model still very valid and necessary, it is important to realize that in this fast changing technology world, IT services organizations have a unique opportunity to provide a lot of extra value to their customers. These days, organizations need all the help they can get positioning themselves to embrace the new technology waves. The new world is very different from the traditional IT world, excellent talent is scarce and the plethora of competitive technology stacks is overwhelming for any CIO. In that sense, most IT organizations are fighting the urge to be more mobile, deliver additional levels of intelligence big data technologies or embrace cloud delivery models because they are afraid of making rookie mistakes.

This new world offers a unique window of opportunities to the new generation of IT professional services providers. Plain and simple: the easiest way to generate recurrent revenue is to deliver additional value to your customers at the strategic level, helping them understand the new technological options and how they relate to their immediate business needs. We don’t need account managers as much as we need IT services firm that can go the extra mile to deliver strategic value for their customers even if not direct revenue stream is attached to the effort.

 
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Posted by on November 6, 2012 in Uncategorized

 

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IT Solutions Providers Still Don’t Get The Consumerization of the Enterprise

For decades, enterprise software was commercialized using a top-down approach that required long sales cycles and the blessing of the IT department. In recent years, the enterprise software industry has witnessed companies embracing consumer friendly product and commercial techniques to simplify the user experience and delivery models of their products. The industry has referred to this phenomenon as the consumerization of IT and has triggered a renaissance in the enterprise software industry.

While the enterprise software models are constantly being improved to drive more innovation and simpler delivery models into the enterprise, the IT services industry seems to be stuck in the same mindset of the early 2000s. Even though most IT consultancies and system integrators have been relatively successfully embraced the new enterprise software technologies, the solution delivery mechanisms, sales cycles and customer acquisition models don’t seem to have changed at the same pace of its technology counterpart.

Even when embracing new technology trends such as enterprise mobility or big data, most IT solutions are still delivered in the same top-down painful approach that requires slightly long sales cycles, formal vendor evaluation procedures and the blessing of IT departments. In addition to that, most IT solutions still get delivered in the traditional models on which the solutions is implemented by an IT solutions provider and later transition to the customer for maintenance, support and future upgrades.

While this model will still be relevant for years to come in the enterprise, I am of the firm opinion that IT services organizations should start drawing lessons from the new enterprise software ecosystems and modernized their delivery models. In some sense, the complexity of the IT services business models and solution delivery models can be very harmful to the enterprise software ecosystem. Aspects such as leaner delivery mechanisms, simpler engagement models, recurrent and affordable pricing models and the ability to support and enhance IT solutions in a more agile way bypassing a lot of the red tape imposed by IT organizations are going to be at the center of the next generations of IT solution business models.

I will share some more ideas about this topic in a future post.

 
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Posted by on October 8, 2012 in Uncategorized

 

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Enterprise Software Lessons: IT Services are Getting Sexy Again and VCs Love It

For the last decade, IT services has been a synonym of boring. Having started and ran an IT services company I am very bias against that line of thought but I don’t ignore the fact that the majority of the industry feels that way. Arguably, the clearest example of this fact is that shockingly low number of VC-backed IT services companies in the current market. Whether you love or hate the venture capital (VC) model, following the VC money will always point to the exciting areas in an industry.

Seriously, can you name any VC-backed IT services companies that started 5-10 years ago?

There are very good reasons why VCs have stayed away from the IT services market in the last decade. Long sale cycles, lack of recurring revenue, scalability challenges, increasing commoditization, lack of innovation and excitement are just some of the factors that never made IT services companies a good candidate for VC funding.

Well, things are changing and IT services are hot again!

As I mentioned many many times in this blog, these are the most exciting times that the enterprise software industry has witnessed since the internet boom. The emergence of technology revolutions such as big data, enterprise mobility, gamification, natural user interfaces, cloud computing, network virtualization, enterprise social computing is redefining the enterprise software landscape. New and exciting software packages are making inroads into enterprise customers and, a lot of times, those software required a complementary services delivery mechanism to facilitate their adoption in the enterprise.

Suddenly, IT services companies are reinventing themselves to play in all these new spaces and incumbents are challenging the well established players with new and innovative delivery models that result very appealing to enterprise customers. Like any other disruptive movement, VCs are actively watching and we are already seeing an increasing interest on IT services companies. In that sense, we can see firms like Sigma Partners backing Boston-based enterprise mobility startup Mobiquity (http://www.masshightech.com/stories/2011/03/28/daily16-Mobiquity-launches-with-5M-VC-financing.html ) and Intel Capital and Canaan Partners putting $45M behind IT services company Happiest Minds(http://articles.economictimes.indiatimes.com/2011-11-16/news/30405749_1_happiest-minds-technologies-chairman-ashok-soota-mindtree).

Without trying to give a complete explanation to this renewed interest of VCs in IT services companies, there are a few factors that can quickly help to explain the phenomenon:

Higher Rates

In the IT services world, new technologies is often a synonym of high rates. These days, enterprises are willing to spend large sums in IT projects related to technologies such as big data, enterprise mobility, cloud computing, etc which sometimes translates into large revenue sources for IT services companies.

Recurrent Revenue

SaaS models have not only redefined the software delivery model but they have opened for IT services companies to offer IT solutions in a subscription based model. With more and more enterprise solutions moving to public cloud infrastructures, enterprises are very receptive to the model of paying for those solutions in a subscription based model which can rerate sources of recurrent revenue for IT services players.

Vertical Solutions

The new generation of enterprise software technologies is redefining vertical solutions across different industries. Given the constant exposure to customers, IT services companies have traditional been in an enviable position to craft and deliver vertical solutions. A lot of these solutions can evolve into very lucrative revenue sources from an IT services perspective.

Vibrant Enterprise Software Ecosystem

The enterprise software ecosystem is more vibrant than ever and every year new players are challenging the traditional enterprise software vendors in different industry. This vibrant ecosystem offers a very unique opportunity for IT services companies to provide efficient mechanisms for enterprises to adopt these new software packages.

What do you think? Is the IT services industry back?

 
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Posted by on September 20, 2012 in Uncategorized

 

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