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Customer 2.0 is here and she has a major impact on business models and system architecture

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One of the major tasks on my plate is understanding the impact of business systems to support the explosion of Software as a service business offerings, such as Exchange Hosted Services, Windows Live offerings and Microsoft Dynamics CRM Live. These business offerings all stem from the 'Subscription' business model built to support our overall Software + Services business strategy.

As I think about the S+S business strategy with my team, we, the Microsoft IT Enterprise Architecture Team, has realized that we must better understand the difference between customer expectations and how these customer expectations influence business models and IT systems. Through our work, we've learned that there is a quite interesting and simple relationship between the enterprise business applications and customer expectations. As we researched customer expectations, we discovered that a new customer profile exists, or is in the midst of existing. This new customer profile has forced the Subscription business model to exist and requires us to have a fresh look at our IT system landscape to support the business model. We have coined the term Customer 2.0 to describe these new customer expectations and this will be the topic of this blog.

My hope in this blog post is that the penny will drop and you will see that a significant change in customer needs has occurred and these changes force a deep and hard look at the supporting IT system infrastructure.

Okay, let's get started. Customer 2.0 marks a significant change in our understanding of the software market. Before describing Customer 2.0, let me first describe Customer 1.0 to help give context.

Customer 1.0 has expectations including:

  • Buys complete software packages
  • Responsible for software installation and maintenance
  • Pays for distinct software upgrades
  • Owns and controls data
  • Locked-in financially because of large up-front costs to purchasing software
  • Delayed usage due to search-buy-ship-install
  • Finds it difficult to move from one software package to another

Customer 1.0 is serviced by a more traditional  Packaged Software business model which has characteristics including:

  • Low volume / large dollar transactions
  • Quantitative is more important than qualitative software features
  • Indirect customer channel via partners and suppliers
  • High barriers to entry and exit
  • Fragmented and specialized customer support
  • Structured product and price models

Through a change in environmental trends, Customer 2.0 has evolved. These trends have a huge impact on downstream business models and system infrastructure. Some of the environmental trends I'd like to highlight are:

  • Increasingly more competitive software market
  • Increasing digitized content
  • Proliferation of the Internet
  • Cloud computing
  • Social networking
  • Collaborative computing
  • Web 2.0 Mashups
  • Code-savvy users
  • Online advertising as a successful business monetization model

The above environmental trends have forced Customer 1.0 to evolve to Customer 2.0 with characteristics such as:

  • Has optional purchase models (flat rate-based and consumption-based subscriptions)
  • Pays only for what they use when they use it
  • Adds features to the experience seamlessly
  • Expects upgrades to be free and continuous
  • Swaps providers easily
  • Has flexible software budgeting
  • Expects a rich internet application experience
  • Accepts ad-based features
  • Expects Self-service Problem Resolution and Service Management
  • Accepts internet/cloud based software that is not installed on-premise
  • Has data locally and in the cloud
  • Has a direct relationship with the Service Provider
  • Instantaneous purchase and activation

These characteristics are incredibly different and force a change in the software business model to service them. Hence, Subscription Business Models has emerged and are a large part of the Subscription business model (near synonymous to the Software-as-a-service business model in my mind), which is key to the Software + Services business strategy.

The S+S Business strategy requires a Subscription business model with characteristics including:

  • Dynamic product and price models
  • World class IT infrastructure : Reliability and Regulatory compliance
  • Customer data is integrated across services
  • Progressive levels of feature usage
  • High volume / smaller dollar transactions
  • Self-Service Problem Resolution
  • Regular Service Upgrades
  • Customer retention is critical
  • Self-Service Service Portfolio Management and SLA Management
  • Low barrier to entry/exit
  • Direct customer relationship throughout the value chain
  • Little customer segmentation
  • Unified customer support experience
  • Single 360 degree view of customer
  • No boundary from features to IT supporting systems
  • Subscription/consumption/points/adverts monetization models
  • Balance transfers from dollar credits to and from points

This business model is substantial and forces a new, fresh look at the IT systems architecture needed to support it. I've bolded words in the business model which should strike you as important; reliable IT, integrated services, high volume, self-service, unified customer support, etc. These are key attributes of the resulting enterprise business system architecture which I will go into in subsequent blog posts.

The purpose of this post is to level-set on the problem domain which I will address in later posts from the business system architecture perspective.

Comments

  • Anonymous
    November 18, 2007
    PingBack from http://msdnrss.thecoderblogs.com/2007/11/18/customer-20-is-here-and-she-has-a-major-impact-on-business-models-and-system-architecture/

  • Anonymous
    November 18, 2007
    Saw two posts that got me thinking... http://scobleizer.com/2007/11/17/the-brand-promise-of-apple/ and

  • Anonymous
    November 18, 2007
    Saw two posts that got me thinking... http://scobleizer.com/2007/11/17/the-brand-promise-of-apple/ and

  • Anonymous
    November 25, 2007
    There's been talk, for years now, about concepts like Enterprise 2.0 and Web 2.0. We are all so enamored

  • Anonymous
    November 26, 2007
      I enjoyed this post from Gabriel a lot - he talks about the dynamics at play in the IT arena at

  • Anonymous
    December 02, 2007
    Kai is calling to you. She is calling to you to make her internet experience Fun, Social, and Engaging. If she uses your services today, that does not mean she will use them tomorrow. She is brand loyal, but your...

  • Anonymous
    January 28, 2008
    As I continue my work on my little nook of Microsoft's S+S business strategy, the team I work with has

  • Anonymous
    January 28, 2008
    As I continue my work on my little nook of Microsoft's S+S business strategy, the team I work with

  • Anonymous
    July 01, 2008
    Welcome to the July 1, 2008 edition of Carnival of Enterprise Architecture (Issue #10). Business Process Management Stephan Grindley presents Enterprise Asset Management Software - a Great Way to Manage posted at Asset Management Articles. Bozidar Spirovski

  • Anonymous
    July 29, 2008
    Good discussion. I agree that the environment has changed but I disagree that the customer is different: http://glasseyonsaas.typepad.com/glassey_on_saas/2008/07/customer-10-cus.html.

  • Anonymous
    June 27, 2010
    Thanks for sharing, really like your view. Waiting for some more great articles like this from you in the coming days.