Conglomerated Tech

The traditional business models in the Tech industry are a variation of the following. A product sale, maintainence/ support contracts and periodic software upgrades. With the advent of the cloud computing model, we have a pay as you use structure where Tech Companies put in the investment into the technology at their end.

These business models have been successful, in fact the cloud computing model is further evolving into the hybrid cloud model now and will continue to yield dividends for years to come. The problem is, the cloud model has resulted in oligopolies in the form of Amazon, Microsoft, HP and IBM. The only means to compete in this space now, is not in the technology itself but at the price points which you can offer. And that is usually where stagnation starts.

Before I continue with this, I must put forward a disclaimer. I have never yet, been directly involved in a sales function. I have always been involved in a sales support role, helping those people who interact with our clients regularly. Hence, please feel free to treat the following as an unsubstantiated opinion.

J.B Wood introduced the concept of the consumption gap in his great book, "Complexity Avalanche".

This concept is the premise of my rationale for a new business model to help spew a new form of creative competition.

Before I articulate it, similar to writing a program, I must declare my variables.

1) The theme of making money via social media has consistently been to connect people. Facebook will consistently remind you of people you may know. Linkedin will always recommend people you should connect to. Twitter, people you must follow.

2) Gross profits and Revenues of Tech companies have been generally declining, with the odd exceptions of some healthy quarters.

3) Clients now ask suppliers to have skin in the game. It is not as easy as it used to be, to have a client make an upfront purchase of any tech. Existing tech, the fact that things work, the demand to sweat existing assets, the negotiation to have lower maintainence contracts.. this list goes on.

4) Clients now look to breakdown large IT contracts into a multi vendor option. Eg; Airtel is looking to do this on its 1 Billion dollar deal with IBM which comes up for renewal this year.

All right. So having done this, here is my proposal.

How about we, as Tech Companies, take on even more risk?

If we look at the four points above and the consumption gap graph before it, a solution does appear to present itself. There is money to be made in reducing the size of this consumption gap.

The way I propose we do this, is by changing the direction. I always loved the definition of velocity vs speed. Velocity is defined as speed, with direction.

Thus far, the direction has been, how do we sell our products and services to our clients? How do we ensure they renew our contracts and buy the next set of products and services? How can we give value to them to ensure question 1 and 2?

Now, maybe the questions should be, how can my products and services help increase the Client's revenue/margin(s) or both? Maybe its time we as tech companies up our skin in the game.

Here is an example. Lets say Reliance has been asked to setup a new factory in Kashmir by the Modi Government. There is risk here. Now a tech company, lets say NTT ( the best one, obviously) puts forward this offer. Reliance, please setup your factory. We will setup your IT infrastructure, connectivity and Disaster recovery. We will give you a great network with access to our Cloud infrastructure and will give you free maintainence on all these products.

What do we get? What revenues you make/ What margins you make, we get a percentage. If your business fails, we get nothing. But if the business takes off, we will be right there with you ensuring it takes off even higher.

The level of creativity needed by Sales teams here to structure such Deals is insanely exciting. Both teams will be evaluating business models, valueing the opportunities, assessing P&Ls potential/worst case, forecasting cashflows... the works! I would love to see AI try to do this.

Let me not keep the ramble going, but quickly conclude.

There is money to be made by reducing the consumption gap, which will happen if we have a high stake in the businesses of our clients.

There is money to be made by accepting that an interconnected, interlinked business model will yield greater outputs.

There is however, money to be lost as well, when business do not do as well as expected. Hence risk assessment metrics and financial business analysis specialists will be needed.