This is not a small little tweak

to your business. It is a

fundamental transformation of

your business model, and it

needs to be board- and CEO-

sponsored, and you need to think

holistically, because it impacts

every single process. It impacts

how you develop products, how

you market them, how you sell

them, how you service them.

Once you're on this journey,

you're all in. You have to stay

patient and you have to stay

persistent on this journey. You

can't just turn around in six

months and say these things are

not happening fast enough

because to turn around a ship,

it takes time.

This episode of "Decoding

Digital" is going to be a little

bit different. Instead of

interviewing one guest, I sit

down with two of the foremost

experts in digital business

models, David Sovie, and Vik

Viniak. In their roles as

managing directors at Accenture,

both David and Vik have played

an integral part in helping

companies around the world

develop digital transformation

strategies and put them into

action. Based in Chicago, Vik

leads Accenture's electronics

and high-tech industry practice

within North America, where he

focuses on using analytics and

AI to drive business

transformation. He has extensive

experience in Industry X.,

supply chain organization design,

and other complex areas. David

is based in Japan. He is

Accenture's global high-tech

industry lead. He is responsible

for driving the high-tech

industry growth, thought

leadership, client portfolio,

and market positioning. David is

an expert in rethinking

traditional business models. In

2019, he released a book on the

topic called "Reinventing the

Product -- How to Transform Your

Business and Create Value in the

Digital Age." In this episode,

David and Vik talk about why

digital business models are so

critical for success and what

companies can do to start

rethinking their own products

and services for the future of

commerce. This is Daniel Saks,

co-CEO of AppDirect. It's time

to decode everything as a

service.

Welcome to Decoding Digital, a

podcast for innovators looking

to thrive in the digital economy.

I'm your host, Daniel Saks. I'll

sit down with other founders,

CEOs, and change-makers to

decode the trends that are

transforming the way we work.

Let's decode. David, Vik,

welcome to Decoding Digital.

Super excited today to profile

both of your work on as-a-

service business models. As

we've discussed on Decoding

Digital, the importance of

digital transformation is really

critical for our customer

success. It's not just about

the technology, but it's also

about the business models that

allow business customers to

easily consume the services that

we're providing. David, I know

you actually wrote a book

focused on as-a-service models

called Reinventing the Product.

I was really excited about the

book and the content, but wanted

to double-click on which

companies have exceeded it

reinventing their products, and

how have they done that through

the innovation of business

models.

Yeah, absolutely. First, thank

you for having Vik and I on your

podcast. We're super delighted

to be here. I'll give you a

preamble then answer your

question. I always talk a little

bit about why now? Why now our

company is talking about

reinventing the business model

to as-a-service? What's

different now? First, it starts

with the fact you have to

acknowledge that to have an as-a-

service model, at least a

compelling one, you need a

product that's smart, with

enough processing power,

connected at a high enough

bandwidth, and ideally AI-

enabled. The reality is even

five years ago, most of that was

not possible. Without 4G, and

now soon 5G networking, you

didn't have the bandwidth, power,

and processors, used to need to

have a $500 or a $1,000 device

to have enough processing power

to have a really smart product.

Related to processing power is

the sensors, because to really

be smart, you need sensors on a

product. The reality today is

sensors cost pennies. You can

get processing power for pretty

inexpensive along with the

connectivity. As the world

moves to smart, connected

products, then the logical

question a lot of companies ask

is, "Do I sell this as a product

or do I, when it's connected and

it's always being updated and

evergreen, why not actually

shift the business model to an

as-a-service business model?"

That's a little bit of context.

Then if you ask, "Who has done

this?" I often say to product

companies, you might think

software companies are a little

different than you, but remember,

software used to be sold as a CD-

ROM and sent in a box. The

software industry has almost

completely pivoted to software

as a service in the last five

years. There was the born-in-

the-SaaS-model companies like

salesforce.com, but people

forget that Adobe was probably

one of the first leaders to

shift from a traditional

software business model to a

SaaS business model. A lot of

the hardware companies are still

on that journey together. A few

examples of companies are

interesting. Apple still makes

most of its revenue from selling

hardware, but if you look now,

they have a 50 billion-dollar-

plus services business. They've

taken that platform and now you

have Apple Music, Apple Cloud,

Apple TV. You see a lot of

hardware companies trying to

emulate that. We could probably

get in a few more examples as we

go through, but that's my simple

overview answer.

What do you think that the

product companies can learn from

the software playbook on some of

the examples that you provided

of traditional software

companies like maybe the Adobes

of the world or the Microsofts

of the world successfully

transforming? How do you bring

that to light in the products

that are trying to transition to

as-a-service business models?

Basically, every hardware

company I know is asking this

question today of, "Can I and

should I transition to some sort

of as-a-service model?" Some

people call it device as a

service, hardware as a service,

infrastructure as a service.

There's different flavors of

that business model ship. Every

CEO I know is asking that

question. Again, why? One is

because it's technically

possible, as I said before, but

two, Wall Street rewards that

shift that this recurring

revenue business model results

in much higher valuations and

much more durability of revenue.

The starting point I often say

is this is not a small little

tweak to your business. It is a

fundamental transformation of

your business model, and it

needs to be board and CEO-

sponsored, and you need to think

holistically, because it impacts

every single process. It

impacts how you develop products,

how you market them, how you

sell them, how you service them.

In particular, the software

industry did a good job of

creating this whole idea of

customer success to say, "It's

not a one-time sale. I now need

people who actually think about

driving adoption and usage of

the as-a-service business model."

As a simple example, that

function doesn't exist in a

hardware company. There's no

such function that says once you

sell a product, I think about

driving usage and adoption

and the customer

success with that product over

time. At the simple level, I

say it needs to be a board and

CEO-sponsored transformation. It

needs to be holistic end to end.

I know maybe Vik could comment

on that. I know you're working

with one of your clients that

are pretty closely on that shift

in business model.

To add to what Dave mentioned,

there are a couple of other

things that need to be learned.

As you make that pivot from a

product to a platform as a

service or as-a-service

offerings, basically, you need

to be also thinking about the

agile principle that the

software industry has grown into,

especially for your architecture.

You need to make sure you're

doing agile development, because

typically, these product

companies are very much of

engineering focus where you need

to get end-to-end down in a very

waterfall fashion. Bring that

agile principles in. The second

thing is Dave was talking about

the transformation. You think

about it's full cultural

transformation, because today,

I'm selling a widget that is

hundreds of thousands or

millions of dollars and I pay my

Salesforce commission based on

that. Now, I'm asking people to

have a subscription which is

maybe only a few 100 a month or

a few $1,000 a month. You're

changing the mindset. Showing

people the value that that's

going to bring, the pivot that

is going to happen, that's

another principle that need to

be brought in. The third thing

is that this is a dual dynamic.

If you look at product forward,

what features of your product

are going to enable the success

for the customer, what value

they're going to drive? Market

backward, what is the word the

market is looking for? Staying

close to your customers and

making sure you are constantly

innovating and creating features

in your product that the

customer is looking for and

having a closer fit of those two.

I feel those are some of the

other things that, from a

software industry, that product

companies should be adopting.

I know, Vik, you've worked with

many companies that have gone

beyond thinking about how to

shift software to as-a-service

or recurring, and even beyond

products. How do businesses

think about, let's say, bundling

product services and other value

points to drive this recurring

business model strategy?

Absolutely. There are two

mindsets that you need to be

aware of as the companies are

making that pivot. First and

foremost, you already have a

customer base where you're

selling product very

successfully. From that

customer base, there are some

early adopters who want to be in

the front end and who want to be

with the cutting edge of the new

innovation that you are bringing.

Take those customers on that

journey with you, bring them to

co-innovate with you, help them

tell you what they're really

looking for and how you can make

their life better. The whole

concept of customer experience

becomes even more amplified.

It's all about customer

experience. Without driving that

better customer experience, you

cannot create a product that is

going to be a hit in the market.

The second thing to look at is

look at your product and look at

where the industry is headed.

Can I move into adjacencies? Can

I move into adjacent industries?

If you don't move it, someone

else will do that, because your

product will become as a source

of what happened to some of the

telcos. It's like they've had

what they call the fiber, but

it's a dumb pipe, because it's

just used for the data. There

were companies who were coming

and building OTT platforms on

top of that, or plugging

applications in that can drive

the benefits. You want to have

incentivized people to innovate

and come into your architecture

and innovate with you and layer

on top of your platform while

making sure that you're also on

the cutting edge. You're not

leaving it all for others to

come in and capture that market

share. You want to pick some

spots, and then you want to open

up other spots for the ecosystem

to come in and innovate with you.

In your work at Accenture, you

obviously consult to some of the

largest organizations in the

world about their transformation.

As we saw with the as-a-service

software models, oftentimes, it

was the upstarts that figured

out how to thrive and become

large companies. When you're

looking at the next cohort of

companies that are trying to

transition, how do you advise

them on effectively making this

transformation, recognizing all

the restrictions in their old

way of doing things, but also

recognizing that they have a

great brand? Where do they start

from an organizational

perspective?

I'll start, and Dave has a lot

of experience in this as well.

I'd love Dave to build on this

thing. First of all, a lot of

the clients at this point are

like transformation-fatigued out

at this point, because

everything is a transformation.

Imagine digital coming at a

million miles an hour at them,

then the whole need to look for

new revenue models. Companies

which are doing an agile

approach in a way that, "OK, I'm

going to pick a couple of

products. I'm going to test them

in the market. I'm going to

scale the success of that, and

I'm going to go after in a

bigger way," that's number one.

Second is, from a cultural

perspective, you have to act

like a start-up while making

sure that you are still a large

organization. Let me explain

what I mean by that. You need

to have innovation and you need

to have people incentivized to

fail fast, but you also need to

encourage people to use the

infrastructure of the large

organization that has been set

up. In a start-up, you don't

have all that infrastructure.

You have a strong customer base

today. Don't try to go find new

customer base, leverage the

existing customer base. You have

the back office that is already

there set up. Don't try to

recreate new back office,

leverage what you have.

Similarly, you have the

relationships that are there, so

leverage that. I feel that

that's the approach that has to

be followed. Don't try to do

with a big bang. Rather, do an

incremental so you can drive

that success.

This is a hard question

and it varies a little bit by

company. The core question to me

is, is your existing core

business going to be completely

disrupted by this shift to as-a-

service in a major way, or is

it going to be slow and gradual?

Or, is there going to be a

segment of the customer

population that is interested in

this so that you could go a

little more slowly, if you will?

It's certainly much easier if

you could say, "OK, I got this

core business. It's going to

continue running. It's going to

generate cash, while I could

build a side business or a new

co-model to offer new types of

as-a-service business models to

my installed base customer." I

see a lot of that. "OK, my core

business is my core business,

but I'm going to try to add on.

I'm going to create a new

revenue stream by creating some

new digital services or digital

service models that complement

that." If you could do that,

that's by far the best. The

reality is there's some

businesses that are going to

completely shift. If you don't

say, "OK, this is how my model

is shifting and I'm all in,"

that's the core question. Do you

need to, in certain product

segments, say, "I'm all in

and this is the future

of my business"? At least in

the software industry,

eventually, the answer was

you're all in. You're all in on

SaaS and the old shrink-wrapped

software on a CD-ROM in a box is,

in many cases, gone, or

on the way to being gone.

You've got to ask yourself that

question. "Is this something

that can compliment and my core

business is fine from there 5 or

10 years, or is this really

something that's going to cause

me to have to actually

completely flip the switch?"

What are some examples in the

product economy that you think

are well-suited to go all in?

I'm going to give you a couple

of examples. It hasn't quite

flipped yet, but the automotive

industry is getting close to

that world. You say Tesla has

proven what is a car. A car is

basically a computing platform

and software with four

wheels on it, in the sense that

a Tesla car and others like it

are very much an evergreen

platform that's continually

upgraded and updated. The

reality is the Tesla car that

you have today is a better car

than three years ago. In the

history of the world, that has

never been true. If you

bought a product three years

later, is it a better product?

It's only when you can have this,

what I like to call an evergreen,

meaning it's a continually

upgradeable platform that you

can improve features and

functionality over time. You're

starting to see this world

already, where people like Tesla

are saying, "Well, I'm taking

the first baby steps, so I'm

going to charge you for upgrades

so you want to pay for

autonomous driving. That's more

of an upgrade package." They,

and others, are very much

talking about, "Well, why don't

I move all the way to an as-a-

service model for access to

vehicles at any given time?"

That's one interesting area that

everyone understands. The PC

industry might be on the verge

of making this shift. A lot of

the laptop companies are

basically saying, "Well, you're

going to upgrade this product

every three years anyway, so

why not try to find

some ways to make this an

evergreen as-a-service business

model?" I do believe there's

going to be a number of segments

that will, 5 or 10 years from

now, flip a switch, and then the

question is, is it going to be

happening in a 2-year window, or

is it going to take 5 or 10

years in order for the switch to

fully flip?

Let me build on what Dave said,

give another example, which is

around the concept of software-

defined hardware upgrades. I

have a Tesla, and each month, I

get a new feature, which almost

makes it like I'm getting a new

car. Imagine someone who wants

to get a new experience in the

car and you have to go in, and I

got to change the seats, and I

got to get this. Everything is

an upgrade here. A lot of these

upgrades are being constantly

pushed out to the customers.

Now, that almost creates the

newness of the product and keeps

that hook in on the customer.

The day is not far for -- I know

some of the car companies are

already trying that -- car as a

service, where each six months,

each year, you can go and drive

in a new car. Obviously, it's

expensive, but if that's the

lifestyle you want, the option

is available.

Fantastic examples and ones that

everyone can relate to. What

I've seen from interacting with

a lot of our clients is that in

order to drive these all-in

transformations, it takes more

than just the technology. It

takes a cultural shift. What are

the characteristics that you've

seen in leaders who have been

successful at driving all-in

change?

First, it needs to start with

the recognition of what you just

said. This requires not only a

business model transformation

but a cultural transformation.

The reality is traditional,

particularly product hardware,

companies have culture and

processes that were built 20 or

30 years ago for a different

world. They were built for very

much a... I launch a new

product once a year. It's a

transactional sale. I sell it to

a distributor or to a retailer.

Then maybe I have a warranty

card that tells me who my

customer is, but I don't really

have any ongoing relationship,

in a meaningful way, with that

customer. To actually adopt and

say, "I now need to actually

have the mentality of a services

company," to say that the

product is just a way to create

a footprint to facilitate an

ongoing services relationship is

a dramatic cultural shift.

Trying to get all the

organizations to actually

understand and be metric-ed on

things like adoption, not just

customer satisfaction but

adoption and usage of the

features of the platform.

That's an example, again, I

think you can get some

inspiration from the software

industry to say, "Hey, I'm

actually measuring my people and

creating some of the

compensation and the visible

metrics tied to usage and

adoption and advocacy for the

platform." That is just a

massive shift. It's just not

something that traditional...

Product companies' culture is

just not geared that way.

They're geared to design a

product and launch it and then

move on to the next one.

Definitely, this all-in decision

is huge. It requires a cultural

shift, a transformation, a

business model trend. You have

to go all in. Going partial in

on this strategy could create

friction, confusion. What's the

balance of saying, "OK, we have

to do this. We have to go all in.

We have to go fast," versus

letting them take their time and

overthink it? Then three years

go by, five years go by. A

startup is eating their lunch.

We as consultants have to

recognize that the pace at which

we move is actually much faster

than the pace at which our

clients want to move. You have

to lay it out for them and then

let them make the decision.

What happens is when they make

the decision with all the data

that you have given and you

guide them through their

decision, it's a better decision

versus a decision that gets

forced on them by even their own

leadership. The leadership buys

in. The CEO, let's say, buys in.

The organization doesn't buy in.

To some aspect, you have to have

the right deliberation to get

that right consensus. Then the

leadership goes back into the

all-in. Once you're on this

journey, you're all in. You have

to stay patient and you have to

stay persistent on this journey.

You can't just turn around in

six months and say these things

are not happening fast enough.

To turn around a ship, it takes

time, versus like turn around a

car.

I feel this trade-off between

speed and also management of

expectations. One of the things

that I found is that at a bigger

organization, people who are

working on an innovation project

do need quick wins to build or

showcase progress, but at the

same time need the support from

the larger organization in order

to adopt it in a reasonable

timeframe. How do you balance

this need for speed with the

reality of managing expectations

to drive overall transformation?

First, I'd say that it's not

easy, and is also linked to this

comment before. Is this whole

market going to flip a switch,

or is this going to tackle a

segment of the market? If the

whole market flips a switch, the

actual P&L and cash flow of a

company has a dramatic impact.

The CFO and the CEO need to

think really hard to manage Wall

Street's expectations and the

employee base expectations. The

transition period is going to be

very painful, because you

actually are going to have

revenue go down potentially for

a period. Instead of just

selling a product for a thousand,

as Vik said, you're going to

sell in as-a-service model and

next year's revenue is going to

be $100. That transition period

is pretty painful. If you think

you need to do it all and switch,

you need to actually have the

right clarity of messaging to

all stakeholders, to Wall Street,

and to your employees and make

sure that you understand that

transition period is going to be

a challenge. Even if it's the

second model, which says I could

start with a segment of the

customer, here, a great example

is light bulbs. I always joke if

you can think of one of the

world's dumbest products

historically, it's a light bulb.

It's a piece of glass with a

filament inside. There is not

much to a light bulb. Today, if

you look at a smart, connected

light, I talk about it in the

book I wrote around Signify's

example, the old Philips

Lighting, where they created the

Hue platform. It's an LED light

that's based on semiconductor

technology, but you can control

it and access it remotely via

your smartphone. That actually

ends up being a segment of the

population. Say there's a

segment that's willing to buy

this higher-end, higher-

functionality smart, connected

lighting, even then, in order to

build that, you need to ring-

fence significant investment

dollars to say this may take a

while to build this. How do I

create that investment envelope

with a commitment to protect

that investment envelope for a

multiyear period in order to

build that business? There is a

two-speed model. There's the

flip the switch version and

there's the, "Hey, I can

actually have a complementary

new business that is going to

lower my financial performance

in the short term, so I

need to protect it. It has the

potential of actually being

significantly more profitable in

the long term." It's a very

hard balance to make. It's super

important to be very explicit in

your messaging and in your

financial planning.

We've talked about the

opportunity to go all in on as-a-

service business models. We've

talked about the need for

cultural change and the

leadership characteristics and

dynamics to ensure that that

change can be successful and the

way to manage expectations of

the teams. Let's take a few

minutes to double-click on the

technology. As a product company

is looking to shift to an as-a-

service model, there's obviously

a whole new tech stack that can

enable the commerce, and the

metering and monitoring, and

subscription enablement, and the

user interface, and the

ecosystem. Can you speak to

some of the challenges that a

business might have on sourcing

this technology and getting

going with adopting new

technology to make this shift?

First, what you just said is

absolutely true, that underlying

technology platforms that

product companies have built

were built 10, 20, 30 years ago

for a transactional product sale.

As they've launched,

particularly if they launched

more of a skunkworks or pilot

effort around as a service,

they used some bubble

gum and mailing wax to

enable it. The reality is they

can't do many, many things.

They don't have systems that

allow you to have a customer

self-configure an as-a-service

solution. You go in, you want to

buy a product, you want to pick

which features and

functionalities that you want in

an as-a-service solution and

configure it and buy it directly.

They don't have that. They

don't have the ability to track

the entitlements to say, "Well,

OK, this customer bought

something with certain access,

service entitlements," which is

quite common in the software

industry. This idea doesn't

exist. What is the

entitlement rights? The notion

of doing ongoing monitoring,

yeah, sure. Maybe they did some

break/fix monitoring, but they

didn't track usage and adoption.

How are you now tracking much

more larger amounts of data from

the installed base to understand

the usage and adoption around it?

It's a pretty massive change.

That's why we see a lot of

clients right now saying, "OK,

if this is going to be the

future of our company, we now

need to do an end-to-end

business process and technology

architecture review and yes,

basically come up with a

completely new technology stack,

ideally, that supports both the

old business and the new

business." The old models

aren't going to go away, so you

can't easily afford two separate

sets of IT systems and

technology platforms. How do you

think through your core systems

to enable traditional product

sales, standalone services sales,

as-a-service sales, other types

of subscription business models?

It's possible, but it's a lot of

work. I'm spending a

lot of time with several clients

right now plotting out that

technology architecture of the

future.

The only thing I would add to

what Dave said is that if you

have a solution in the market

that is readily available, go

with that, rather than try to

create a solution on your own.

Or, when given a choice, go with

the out-of-the-box solution

versus trying to customize.

Right now, there are several

solutions available for the back

office as well as some of the

capabilities you need, leverage

them. That's the only advice I

give to the clients.

When you're thinking of a client

and how they picked, Vik, to

your point, an effective best of

breed out-of-the-box technology,

how do you help them assess if

their traditional IT stack can

map to that new stack and how

that works?

I'm doing this right now

with a client, and one

of the things we're doing is

forcing them to think through 15

or 20 different use cases or

user stories of the future.

Probably, 10 or 12 of them exist

today. They don't necessarily

exist in this client, but we're

saying, "OK, there's many

different flavors of as a

service." Forcing them

to think through, what is the

evolution of all the different

business models and permutations

of business models that you

could imagine offering in the

future so that you could future-

proof? Often, these are pretty

big-ticket investments. You're

probably easily sometimes

talking $100 million or more for

a big Fortune 500 or Global 2000-

type company in order to enable

that tech stack in the future.

You want to future-proof the

investment. In my mind, I

always say let's start with,

what's the evolution of the

customer experience you want?

Number one. Two, what are the

different business models? As I

said, there could be 15 or 20

different flavors of those

business models. Then you can

pressure-test the architecture

against that. What architecture

choices I make give me the

flexibility to evolve my

offerings and my business models

over time? Some stack choices

are great for a narrow, one

business model, and if you're

quite confident that your future

looks exactly like this, you

might make one set of choices,

but if you're uncertain about

how this market is going to

evolve, then you want a more

flexible architecture that's

allowing you that flexibility

for the future.

The only thing I would add is

that when we are going through

the options, it's always good to

start with those use cases and

do end-to-end process so you can

see how the process actually

works and where the gaps are,

and then you scale, versus

trying to do everything together.

Pick a use case, follow the end-

to-end process, and that will

actually help you work out the

kinks in the process, and then

go to the next one, and the next

one.

Just to bring the conversation

back full circle, Vik, one of

the things you highlighted early

in the conversation was around

the importance of product

companies becoming digitized and

connected, and then ecosystems

being built on top of them. I

recognize that in the

traditional economy, product

companies furiously competed

based on capability and feature

set, and it was very hard to

differentiate. Whereas today, it

seems like companies big and

small can collaborate, and

partner, and enable different

components of the ecosystem.

Would love to get your thoughts

on coopetition as a future of

business and how that impacts

the way businesses seek to

compete.

When I started my career 20-plus

years ago, the thing used to be

that in the next few years, it's

not going to be companies

competing with each other,

rather, supply chains of

companies competing with each

other. The last four or five

years, I've started to say that

it's not the supply chains

anymore. It's the ecosystem of

the...how do you build the

ecosystem around you and how do

you leverage that to drive your

growth and transform, is going

to define who is going to win.

I'm a firm believer that you got

to build your ecosystem. You got

to pick the right partners, and

then you got to go all in,

whether it's to build the

product, whether it's to scale,

or whether it's to drive growth

in the market. I think that is

here to stay, and we see the

various elements of that. If

you look at Microsoft, Microsoft

is actually providing software

to Dell and HP. On the same

token, Microsoft also has the

product that competes with what

Dell and HP have to offer. I

feel that, like you said, the

coopetition is here to stay.

You just need to continue to

invest in pockets which can

drive benefit for you and know

that someone is going to come up

with competition, whether it's

your ecosystem partner or

competition. How you continue to

gain and join that? That's real

innovation.

Thanks, Vik, David. This was

phenomenal, really great

insights into as-a-service

business models and how product

companies can transform. I

really enjoyed the conversation

and look forward to connecting

again soon. Thank you.

Same here. Thank you.

Thanks, Dan.

On the next episode of Decoding

Digital...

In a digital world, things are

infinite. The possibilities are

infinite. The opportunity is

infinite. The ability for

inclusion is infinite. The

ability to actually make money

is infinite.

Founder, chairman, and principal

analyst at Constellation

Research, Ray Wang. Thanks for

listening to Decoding Digital.

Make sure you never miss an

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player. To learn more, visit

decodingdigital.com. Until next