Cloud-based solutions are still relatively new. And yet we are witnessing a dramatic and fundamental shift in the Cloud business and go-to-market models, evolving before our eyes in just the last few years. The shift from on-premise license software sales to the cloud was and continues for many companies to be a massive and arduous change. Big hybrids struggle with critical questions around the revenue model and their sales force models, channel strategies and compensation solutions to effectively migrate their businesses and customer base from on-premise to cloud-based. But here’s the problem ̶ by the time they make the transition, most pure-play cloud competitors will have already moved on to “Cloud 2.0.” What is Cloud 2.0? Here is a quick summary of the shift and the impact it has on your organization’s go-to-market model.
In the Cloud 1.0 world customers traded CapEx for OpEx, heavily customized solutions for web-based solutions, and big services and maintenance contracts for lighter IT support and monitoring. As different as this sounds, Cloud 1.0 still shared several things in common with the old license-sales model, including, in many cases, big, multi-year contracts, high switching costs, and term renewals. Cloud 2.0 is changing the model drastically to one focused on pay-as-you-go, usage-based models with termination-for-convenience clauses, and in some cases performance-based plans. Thematically the shift is drastically in favor of the customer, which is a good thing. To compete and win in the Cloud 2.0 world, solution providers are being held increasingly more accountable to deliver value with their solutions, right away, and on a continual basis.
The impact of Cloud 2.0 on the business is massive. Cloud 1.0 companies enjoy long term contracts with commitments for monthly or annual revenue. These contracts raise the customer’s cost and hassle factor should they desire to switch providers. Cloud 2.0 models are breaking down these walls … no contracts, usage-based pricing, and thus, very low switching costs. Over time, competition will drive this more customer friendly model to become more and more pervasive across different types of cloud offerings and solutions.
Sales Model Impact
The Cloud 1.0 Sales model, rather than looking like a complete stranger, more resembled a first or second cousin of the old on-premise solution sale. It came with a traditional, enterprise-like acquisition engine, comprised of heavy outbound calling; a long sales cycle focusing on TCV or ACV with multi-year options; and a general sentiment of the company to “lock in the customer” for as long as possible so as to “force” stickiness in the deal. Compensation models in Cloud 1.0 therefore resembled the traditional license sales compensation plans to a large extent. Cloud 2.0 is dramatically different. The focus is entirely on “try before you buy.” Free trials or very low cost entry-level service options abound. Pull marketing leveraging social and viral methods convey the message of convenience, “easy to consume,” “see for yourself” models that are FAR LESS reliant on a sales person persuading the customer to sign on the line that is dotted. Thus the sales model has shifted even more heavily to a services orientation, leveraging inside sales to help prospects – many of whom are ALREADY customers in some stage of trial or entry-level service option – understand the value they are ALREADY getting from the solution, and thus how they might expand their usage to realize even more value (at some additional cost, of course). This shift has created massive change to both the types and ratios of sales roles needed (more inside than field, more customer success than hunters). Compensation models are equally changing to emphasize recurring revenue (MRR or ARR) over contracts and land-and-expand over large upfront purchases. While Cloud 1.0 companies introduced the concept of customer success teams, Cloud 2.0 companies are taking this model to the next level, developing different flavors of customer success roles by customer segment and type.
Meanwhile, cloud computing continues to grow at a breakneck pace, from $58B in 2012 to $115B in 2016, according to Gartner. Is your sales force ready?
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Original author: Paul Vinogradov