One can imagine that enterprise software executives’ top priority right now would be pulling on every available lever for profitable growth, given that profits too have been declining sharply in recent quarters. Assuming most software vendors continue to benefit from differentiated products, proper market fit, and brand value, what can they do to stem the decline in profits?
Software Margins Fall Victim to Long Customer Implementation Cycles
Software companies typically need to configure, customize and integrate their software products for enterprise customers. This software implementation exercise is often a lengthy process and involves professional services. The time taken to complete an implementation and the quantum of effort employed in services have an impact on software margins – more the time and effort, the less the margins software vendors make. Each week or month that elapses between a sale and having it go live (when revenue realization kicks in) is therefore vital to protecting software margins.
In this era of customization and extreme configurability, many enterprises want to deeply customize complete experiences of the software product they are buying, which further elongates time to live — sometimes up to several months or even upwards of a year. And in many cases, professional services teams (internal or external) take time to spool up and speed up implementation, so if the implementation is more complex and heavy, the more time it takes to simply identify, prioritize, allocate and spool up implementation teams.This further makes a dent on implementation cycles, software margins and the time it takes to start earning money on a contract.
To address this challenge, software providers are adding tools that “activate” enterprise customers faster, including low-code UX builder tools for the creation of simple apps. More complex integrations and sophisticated apps still need manual intervention and effort. Secondly, some companies are changing their revenue recognition model to begin at the start of implementation if SI partners are involved in implementation. There are risks associated with this approach if implementations overrun schedules, budgets or fail altogether. Other software companies have rebuilt their software platforms on a composable foundation. But that still leaves hard-coded and/or hand-coded web and mobile experience layers, which are skill-and-intensive and expensive to extend, customize or configure, and often lead to UX/UI “spaghetti.”
A Low-Code Composable Experience Model Offers Solutions
Rather than the traditional model of software vendors delivering only complete experiences that are hand-coded and tightly locked to preset user journeys and UI elements, there’s an increased call for low-code composable experience models. These models deviate from the traditional and inflexible methods of software implementation in two key ways.
First, there is a shift in these new models from full-service to self-service. Software vendors are no longer the sole contributors to the product; the act of creating custom experiences is a participative process between those vendors, customers, systems integrators, and third parties.
Vendors provide what is called the “experience infrastructure”—a combination of experience-aware APIs, micro-apps, an open low-code composable experience studio, third-party APIs, a design system builder, and a “base version” of full web and mobile experiences to be built atop of. In a mature scenario, customers and third parties can compose their own custom experiences as needed, no longer depending on implementation teams at vendors.
Second, the experience infrastructure or “experience-as-a-service” stack is a cleanly separated layer atop the digital capability platform core of the software vendor. This is a departure from the traditional; vertically integrated models with full experiences. The development of API-integrated experience components is wholly owned, delivered, and maintained by software vendors. SIs, 3rd party developers, and customer teams take advantage of this experience-as-a-service stack, rapidly composing new, custom application experiences with little effort and reduced costs.
Less time in service implementation means lesser margin dilutive services revenue. And, higher speed to market for new capabilities means shorter time-to-profit.
Turns out that a composable experience model is also jet fuel for ecosystem growth, bringing developers, partners, customers, and third parties to the table to easily, quickly, and inexpensively build compelling end-to-end experiences. It also can generate new revenue streams by monetizing already-incurred R&D across the software platform, APIs, developer portals, and SDKs. Plus, this participative development model also helps bolster customer adoption and stickiness; it’s natural to feel more satisfied and invested in something when you have a hand in building it yourself, after all.
Reinvent Software Model for Short-term Profit Acceleration and Long-term Strategic Advantage
Enterprise software companies are routinely challenged by new competitors and products with game-changing capabilities. What ends up making or breaking software makers are the long-term advantages they can achieve by successfully executing their platform’s digital core capabilities. The goal is to free up leadership’s mind space and bandwidth, so they can focus on identifying and building on core capabilities. That will help them stay ahead of competitors while investing in experience infrastructure and being an enabler (rather than doer) in the custom, differentiated experience business.
Composability and its practical implementation are not new. Many enterprise software vendors have already invested in composable platforms – APIs and microservices, built their digital cores on robust cloud foundations, and offer integrations with legacy systems and third-party capabilities.
And transitioning to a low code composable experience model isn’t an all-or-nothing proposition. Enterprise software makers already know typical enterprise customer implementation needs, including customization—those become the low-hanging fruit for orchestrating experience-aware APIs and creating higher-order experience components. The key is to start small and steadily invest.Those who miss the opportunity to transform their software stack to this bold new, two-layer architecture do so at their own peril. On the other hand, reinventors stand to gain financially in the short term and strategically in the long term. It’s time to herald a new way of doing business in enterprise software.