Monday, September 24, 2012

When You Provide A Platform, Customers Do Incredible Things

Many years back I worked at DigitalThink, a Software As A Service (SaaS) provider of E-Learning software. Several organizations including a few for-profit learning organizations used our platform to deliver learning content to their employees and customers. DigitalThink is where I learned the basics of the SaaS business model and operations.

At DigitalThink, I worked with and later managed a team of people who advised customers who wanted to build learning solutions. To make the process efficient, I designed an approach called solution blocks that helped us assemble solutions from pre-fabricated building blocks, much like how children build things from LEGO™ blocks. We created standard solution blueprints for every block so that we can assemble a solution for a customer within hours of understanding their needs.  This approach saved us a ton of money and increased our profit margins. My colleagues and I were very proud of that approach.

The only time this approach did not work smoothly was when customers wanted integration between our system and a system within their firewall. We had many such customers and we spent much more time than normal with such customers. Integrations always involved multi-skilled teams, several discussions and negotiations with multiple stakeholders.

Initially, I viewed such customer integrations as a burden on our efficiency and our profit margin. Over a period of time I started noticing something interesting. Customers who integrated their systems with us stayed with us longer than the usual three years a regular customer stayed with us.  Our profit-margin from customers with custom-integrations was higher, even though we spend more time building solutions for such customers. I found out that those customers spent more money with us and paid more per user compared to customers with no custom integrations.  I once asked such a customer why they were willing to pay more. What they said changed my opinion about custom integrations.

People do incredible things when you give them a platform. Image from  http://www.geekologie.com 
They said that they see custom integrations as a way to build a competitive advantage over competitors, who might be using the same or similar solution. They see custom integrations as incredibly valuable and were willing to spend money on such integrations and technologies that enable such integration. They also said something eye opening. They said that they were not keen on using our services to build their integration. They wanted us to given them a platform so that they can build their own custom integrations. They wanted to build more not less custom integrations and they wanted control over such integrations.

Almost a decade later today, this sounds like common sense. Ask your software provider to provide the basic building blocks but innovate by connecting those standard blocks in unique ways to create a competitive advantage. I learned that a significant number of customers who use SAP and SuccessFactors products have built custom integrations to differentiate themselves from their competitors, who also might be using SAP and SuccessFactors products. A few such customers have built, to my surprise, hundreds of custom integrations. Customers are smart about their business and savvy with their money. They do what works for them and spend money on things that pay them back. After watching such behavior and listening, directly and indirectly, to a few customers who have built custom integrations,  I believe that investing in an integration platform and building custom integrations pays back. Since customers with custom integrations stay longer with a provider, the software provider also makes more money than normal.

My colleagues and I are applying these lessons learned while making important investment decisions about integration technology and identifying possible standard integrations. I wonder what you think. Please let me know.

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