Leadership Insights: Business Models in the Cloud Computing Era

Transcript

Mike Vizard: Hello, and welcome to the latest edition of the Digital CXO Leadership Insights series. I’m your host, Mike Vizard. Today we’re with Uddhav Gupta, who’s president of CloudBlue, which is a provider of some expertise in the area of the cloud. And the thing that we’re talking about specifically is the business models that are enabled by the cloud. Because a lot of folks, they move to the cloud, but I’m not quite clear they understand exactly what to do with their businesses in terms of turning that into an actual subscription and what does it mean to be in the services business and all those good things we talk about related to digital transformation. Uddhav, welcome to the show.

Uddhav Gupta: Thanks, Mike. I’ve always found the interplay between subscription economy and digital transformation fascinating. So it’s my pleasure to join you today on this episode of Digital CXO.

Mike Vizard: You have a lot of experience working with various clients. What are the challenges that you see? I almost feel like sometimes people think of the cloud as an IT event and they don’t necessarily connect that back to their business models, but is that gap closing or where are we?

Uddhav Gupta: It’s interesting you bring that up because I think the biggest problem that customers that I speak to are facing is the relevance of three different terms. First, the cloud, second, digital transformation, and third, subscription economies. And many a times customers struggle to basically bring these three terms together in one single package, in one single flow. So it might be interesting to basically start with that, let me talk to you about a little bit what I see there, and then we can basically come back to it.
When customers start thinking about digital transformation, the first thing they think about is how are they going to transform their business? But then they start thinking about what does it mean to transform that business? And often people know that digital transformation is about changing their digital experience, changing their monetization models, changing the mindset of people, but they never know what is at the core of all that activity. And at the core of all that activity is building a really robust monetization strategy. And when you look at the monetization strategy, that’s where there are two major factors that come into play. One is the subscription business, the subscription business model, the outcome based model, and the second one is a transition to cloud.
Now, where these two beings basically come together is how can I take my legacy business, my legacy business model, and convert it very quickly into a service based outcome driven model? That’s number one. And often there, you need to start thinking about how companies have evolved themself. Even like Microsoft, Adobe, Apple, Tesla, all these fast mover companies have taken what would be legacy models and converted them into a subscription based model. So I can basically go and take innovations from Tesla directly through a subscription model in an in-app purchase.
When did I last buy basically a set of music albums or songs or videos? I’ve subscribed to a service that basically knows my buying patterns, knows my consumption patterns, knows my usage patterns, takes that data, does some reinforced learning and makes that recommendation available for me that actually now goes ahead and allows me to consume stuff that I didn’t even know about. That is an experience that we are talking about.
And the reason that’s possible is if you were deploying stuff independently behind your firewalls as a standalone instance, you would never get that collective insight. You’d never get that collective learning. You’d never get that collective power to provide insights and recommendations. The cloud enables that. By moving to a cloud-based environment, moving to a SaaS application allows you to basically go after that collective insight, the collective power of recommendations. And that’s the second piece that the cloud is often enabling ISVs, technology partners, companies to basically go after. And that’s the beauty of the subscription economy combined with the cloud economy.

Mike Vizard: Do you think people have grandiose expectations of making that transition and they think it’s going to be more of an event than an actual journey? I think a lot of organizations have commitments to their existing business models and customers are comfortable with that. So do we get maybe a little ahead of ourselves?

Uddhav Gupta: Sometimes yes, sometimes no. I often think about these transitions as something where an enterprise needs to choose whether it’s going to be the first mover or it’s going to be a fast follower. And any of these transformations should be designed and thought about like a paradigm change. It’s a project, it’s almost like want to become physically fit today and you don’t basically go and bench press a 300 pound load, you basically gradually evolve. The same is true with anything you’re trying to do in terms of transformation projects. Whether you’re moving from a legacy model of monetizing your product to a subscription based model, you don’t do it all in one shot. You basically take gradual steps. You introduce new products first in a subscription model, then you take the existing greenfield products, wait for the renewal, that’s when you basically move them to subscription models, and then you eventually take your entire install base and move it to a subscription model. So you do that in phases.
The same thing is basically with adopting cloud. You start with new customers coming on board on your SaaS products. You take your existing customers that are already running your product, move them to a SaaS version of your product or a subscription based version of your product, and then you basically move the existing greenfield, brownfield customers that you have to versions of your product. So you need to basically look at this absolutely like a journey. It’s not a one shot thing that you can do overnight.

Mike Vizard: Is the relationship between IT and the rest of the business changing as a result of all of this? Because sometimes I feel like I visit organizations and the digital business leaders are trying to figure out how to get the IT folks to buy in, and of course nothing’s going very far without IT people buying in. So how do we bridge what feels like a little bit of a gap at the moment?

Uddhav Gupta: Yeah, no, I think if you think about the enterprise world, it’s no different. At the end of the day, at the core of the enterprise world is humans. And when you start thinking about it, what humans experience in the consumer world is what they want to basically bring into the enterprise world, into the B2B world. And I think that’s where there is a slight difference between how fast a consumer can adopt a digital transformation as compared to an enterprise can adopt a digital transformations or move into the cloud or move to a subscription based economy. For example, as a consumer, I can basically adopt a subscription economy as I want on a service by service level on a product by product level.
When I’m looking at an enterprise, I’m basically looking at moving to new business models of my ecosystem, but it has direct impact in terms of how I do my business, how I conduct my business. So there’s a lot more upstream and downstream evaluations that need to happen before you can actually switch completely to a different way of engaging with their ecosystem or engaging in different models.
And I think that becomes the Achilles heel of IT organizations that are going through digital transformation. It’s the ability to basically say, yes, we will go and make and do these transformations, whether it’s moving to a subscription economy, whether it’s moving to a digital transformation project, whether it’s moving to a different kind of an experience economy.
IT and organizations, CXOs, et cetera, need to think about three things as an enterprise. The first one is, how can they evolve their business model, to your point, providing continuity? And that continuity comes from a couple of things, acceptance and mindset of the customers that are already doing business with them, acceptance and the mindset of the ecosystem that they’re doing business with, and how can they basically have the right tools and the right people in place to basically support that journey? That’s number one.
The second thing they need to rethink about is the experience model. You can’t really take a company that is doing business with you in a particular way, in a traditional way of saying, “I’m going to go ahead and put orders to a particular portal,” and tell them, “Tomorrow, well, we are going to go touchless and you can basically do it all through APIs.” You need to basically give it enough soak time for the ecosystem around you to absorb the change and implement the change. Which is why if you look at most of the subscription economy projects or digital economy projects, they tend to become like 12 months, 18 months long projects, not because it takes them 12 to 18 months to basically implement the solution. It takes 12 to 18 months to basically get the solution successfully rolled out and adopted by a critical mass.
And the third thing is about retuning or refitting the tools, the people, the mindset, and the systems within the organization itself. Once you basically do these three things, that basically is the secret formula to a successful transition project.

Mike Vizard: Is it your sense that organizations are more profitable once they move to some sort of subscription model? Or is this kind of just the fashion statement of the day from Wall Street, so everybody’s kind of like, “Ooh, I got to have recurring revenue”?

Uddhav Gupta: Absolutely not. Companies over the period of time have proven multiple number of times that moving to a subscription model is the right direction to go. It gives them predictable revenue. It basically helps with the customer churn. That’s why ARR is so heavily valued by the Wall Street. In fact, I recently read a research by one of the major consulting firms, I think it’s Bain, that highlighted and said almost 45% of the companies that have basically made this transition to a subscription economy have actually grown multiple folds over the period of time. So it’s a very proven thing. You take Microsoft, you take Adobe, you take any of these larger players that are in the tech vendor. I come from the tech space, I’m more familiar with those spaces that have basically switched over to a subscription model, have grown their business multiple number of folds and rewarded dividends in the long term. So it’s definitely a direction that we strongly encourage customers to go towards and we help customers with our technology and our platform to basically move to a subscription economy.

Mike Vizard: As we kind of go down that path, what role do you think AI might play in this conversation since you cannot walk down the street these days without somebody telling you about their great new thing? But will AI accelerate this transition and how might it manifest itself?

Uddhav Gupta: I think AI is going to be at the core of everything. I just recently was talking to somebody and by 20 years from now, we’ll have more bots operating with each other than people. We are already starting to see this, and in that world there are two things why AI is becoming so relevant now. One is data. Data is becoming readily accessible. People are more open to sharing data. People are more open not only just in the consumer world, but also in the business world in conversations that we have with other customers, with the enterprises. Everybody’s talking about data exchange in a very ethical, in a very governed manner. Now, when you have all the data available in a single repository in the cloud, doing reinforced learning to understand patterns, to be able to share these patterns and influence each other’s business operations becomes very, very critical.
In fact, if you think about it, about 20 years ago, there was this whole concept of service oriented architecture where people were really defining business processes to talk with each other. But that had to be defined, that had to be pre-agreed upon on how that interchange would happen. Now with AI, you don’t need to have those predefined agreements. You can basically take data from one side, use AI to make sense on the other side. You can take a business process from one side, make sense on the other side using AI, and you can use AI to basically optimize continuously your workflows. You can use AI to optimize your end user experience. You can use AI to basically make offers on a product. If I come to a site, I come once I have an offer, the next time I come back again within a day, it’s a slightly modified discount and bundled offer. I come back the third time, it’s basically “Let me make you an offer that allows me to close your transaction.”
That’s the power that AI offers, which is not plausible if you had human doing it, but it’s completely plausible with bot and systems doing it behind the scenes. And I think that aspect of AI is going to basically come into pretty much everything. So I don’t think in five years from now you can walk around without having AI influencing some part of the activity that you’re doing at that moment.

Mike Vizard: How do we get the customers to buy into this? Even in the consumer space, we’re seeing people kind of waking up and realizing that they are paying more for television services than they ever did before when things were bundled together and businesses are no different. They start to recognize that they’re spending more with each of these individual organizations and a lot of them are suddenly getting leery of the subscription model. So how do we kind of navigate that?

Uddhav Gupta: Me too. I was having this conversation with my wife just the other day. I think I’m paying more in subscriptions for all these different ODB platforms as I was paying previously for my cable services. It is true, but you also need to look back a little bit at a couple of examples of what we have seen happen in the enterprise space. So the first thing is when the cloud came in, everybody was like, “Oh, the cloud is super easy to use. It basically gives us the elasticity we need. It gives us the flexibility that we need.” And people started moving workloads left and right to the cloud. Then they realize, “Oh my god, the cloud’s expensive. The elasticity comes at the cost to us. The ability to basically automatically deploy and spin up and spin down services comes with a cost to us.” And then you suddenly had a whole new industry that spun up that basically started looking at your usage patterns, et cetera, and applying AI, comparing your usage patterns to profiles that are very similar to you, and starting to make recommendations on how you can basically start cutting your cost.
You will see similar kinds of aggregated services starting to come in other aspects of the enterprise business. So today, there are already services that are available, products that are available that allow enterprises to look at subscriptions that they own and say, “What are the ones that they’re effectively using? What are the ones they’re not effectively using?”, and start making recommendations saying, “These are the subscriptions that you should basically slow down on. You should basically, when you come up for a renewal, adjust these subscriptions appropriately.” And there are other places where you basically show where you should grow. There’s AI that’s coming into overall spend management. There’s AI coming into the procurement of the services to help enterprises better understand what do they need and what do they need to buy and what do they need to basically sunset. So there’s a lot of those kind of toolings that are basically coming up to help a customer, a user, a procurement person, an administrator, A CXO, understand how could better manage their OpEx spend along all these different subscriptions.
Now, I wish somebody came up with a tool that basically said, you’ve got these 10 different subscriptions all the way from Netflix to Prime to everything else, and this is how it can be aggregated into one single subscription. That would be great. It would save me a lot of money. But that’s a patent where I think technology and patterns and solutions have advanced more on the enterprise side that have still not yet come on the consumer side. So we are starting to see that shift where there was consumer stuff that was driving enterprise behavior, and now we are starting to see a shift where there’s technology being built in the enterprise world that will actually make its way to the consumer world.

Mike Vizard: All right, so ultimately, what’s your best advice to folks about how to navigate this transition? Because it seems like there’s more intangibles than tangibles that need to be addressed, and I don’t know if it’s cultural or technology.

Uddhav Gupta: I think it’s both. So I think the most important thing, as I mentioned, you need to basically as an enterprise think about what’s the identity you want to create? And is your identity going to be that of a fast mover because it’s going to help you leapfrog your competition? Or is your identity going to be that of a fast follower where you basically understand what’s happening in the market and then rapidly adapt your business to it? That’s the first thing. The second thing I think is post-COVID, and now we can talk in the terms of pre-COVID and post-COVID as eras, in post-COVID, there’s a lot more focus now that’s being brought to digital and rethinking monetization strategies. So you cannot anymore be the dinosaur. You can no longer be the person that’s sitting on the sidelines waiting for the right digital project to emerge or the right subscription project to emerge or the right experience project to emerge. You have to basically go in and start making gradual changes to your monetization strategy, to your subscription strategy, to your cloud strategy, and to your digital strategy.
The other good thing is, in the last, I don’t know, half a decade, technology is now at a place where it can actually power these conversations and enable you to do these things a lot more faster. Whether it be moving to cloud, there’s enough technology available there that can take your legacy application and quickly move it to the cloud in a very efficient manner. There are tools that can basically tell you how you move to the cloud without spending more than what you’re spending right now and actually saving money, but taking advantage of all the elasticity. There’s AI tools that basically allow you to do a lot of optimization of the business processes and building efficiencies into these business processes. There are a lot more platforms that allow you to harness the data, analyze the data, and make sense of the data. There are a lot more experienced platforms available out there in the market now, and there’s a lot more monetization platforms that can help you completely rethink your monetization strategy.
So take advantage of these technologies, take advantage of these platforms, and the next part of that is the skills available to run, operate, and manage these platforms is also maturing big time. Unlike three or four years ago where these skills were hard to find, now these skills are almost readily available across the entire globe. Take advantage of these skills. Think about retooling the people in your organization. Think about retooling your systems. Think about retooling your processes to meet where you need to go from a digital transformation, to meet where you need to go from a subscription economy standpoint because the world is going there. You can either choose to be a part of it or you can choose to be left out. And we know what’s happened to companies that have got left out. They basically disappeared from the map. So it’s an absolute thing that they should basically consider moving, and the time is now, the right time to invest is now.
Invest depending upon how much you can basically absorb. Invest in building the right cultural mindset in your company first. Get the mindset to adopt technology. Get the mindset to adopt digital. Get the mindset to adopt moving to a model where you’re not going to see huge upfront revenues coming in, but you’re going to see consistent revenue coming over a long period of time. Change the mindset to not having a mindset where, oh, you’ve closed the deal, you’ve locked the customer once, and that’s happy, that’s done. You can park that customer away for three years. Move to a mindset where you basically have to continuously engage, invest, involved in the customer success, because churn management will become a very big issue for you if you do not as you move to the subscription economy. So those are the kinds of things you need to start thinking as you move to the world where it’s going.

Mike Vizard: All right, folks, you heard it here. Digital transformation, it’s a mindset. And then you work backwards from there, because once you change your mindset, then all the other things will start to come in and focus a little bit better than they are at the moment. Uddhav, thanks for being on the show.

Uddhav Gupta: Thank you so much, Mike.

Mike Vizard: All right. Thank you all for watching the latest episode of our Digital CXO Leadership Insight series. You can find this episode and others on our website. We invite you to check them all out. Until then, we’ll see you next time.