More business models for ITaaS
There are quite a few different ways for companies to make a profit. If you’re going to run IT like an independent business … the ITaaS approach … you’d better know what they are.
A couple of years ago I “reported,” in InfoWorld that “… the Silicon Valley Rabbinical Society is reportedly experimenting with services as a service, and the Conjunction Society of America will soon offer “as” as a service.”
While we haven’t sunk quite that low … not yet, at least … we do have IT as a Service (ITaaS). This isn’t, fortunately, an attempt to package everything IT does into software you can access through your browser. It is, somewhat unfortunately, the resurrection of the old idea that you should run IT as if it is an independent business, selling to its internal customers.
Last week’s column pointed out a logical consequence — that if you’re going to run IT like an independent business you’ll have to actually run IT like an independent business. Among the ramifications: You’ll have to run IT according to a clearly enunciated business model — a well-defined account of the levers and buttons you pull and push to gain profitable revenue.
In real businesses the “big three” business models are product innovation, customer intimacy, and operational excellence. Likewise ITaaS.
But while these are the most common models, they’re hardly the only ones, and so, in response to popular demand, here’s the first half of the rest of my list of business models employed by real corporations, along with a suggestion of how they might apply to ITaaS.
Product/service innovation variants
We covered the basic version of product innovation last week, but there are three variants that deserve special mention:
- Razor/blades — give away the core product to create a captive market for renewables. ITaaS might, I suppose, “give away” PCs, smartphones and tablets in order to create demand for applications, charging enough for access and use to make a profit on the spread.
- Financing — break even on the core product; make money on financing the purchase. Back in the day, GM made more money financing car purchases than it did on vehicle sales. Many health clubs finance memberships and make more on the financing than on the dues. It’s a dangerous play, though. As GM demonstrated, once you head down this path it’s easy to stop caring whether you sell competitive products. ITaaS should blow this one off.
- Media — use content as bait; sell content consumers to advertisers. I don’t even want to think how ITaaS might make use of this business model.
- Production capacity/capability. Most hotels and airlines follow this model — they do everything they can to fill rooms and seats.On the apps side of the IT house I’ve heard this called the “leverage” model and it’s a seriously bad idea. It means assigning everyone to enough projects that they’re always busy. The theory: doing so minimizes unit costs by eliminating wasted down time. The reality: According to Tom Demarco, along with just about every developer I know, every interruption and task switch from one project to another costs 15 unproductive minutes. Do the math.On the ops side of the IT house this strategy can make more sense — keeping networks and servers near but not beyond capacity minimizes unit cost. If you’re interested in pursuing this model, two words: hybrid cloud.
- Technology/competency. This means finding new uses for something you’re good at. In the world of ITaaS this might have some tactical value, for example, renting out business analysts to help business managers figure out more effective ways of doing things, or renting out project managers to lead non-software-related projects.
- Sales/marketing method. Think Amway and Mary Kay — it doesn’t matter what you’re selling, so long as you can use your established selling techniques to sell it. If there’s application to ITaaS I’m not ingenious enough to spot it.
- Distribution method. This usually means dominating a distribution channel, and at a minimum means mastering one. For example, you know those nasty companies that trick you into installing adware? That’s an unsavory example. Convenience stores are a non-unsavory example (I nearly said “savory,” but the food they sell isn’t that tasty. Except, of course, for Nut Goodies.)The ITaaS version might be interesting: As IT already has relationships with literally everyone else in the company, figuring out more services that might have business value and could be provided through those relationships has potential.
- Natural resources. The extraction industries — forest products, mining, coal, oil … We could push the boundaries, I suppose, and think of everything in the company’s databases as natural resources, making data mining directly analogous to actual mining. But if we did, the Metaphor Police would hunt us down like dogs.Had enough? Too bad — we’re only about halfway done. But it is enough for this week.Stay tuned.