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More business models for ITaaS

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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.

Business models

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.

The rest

  • 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.

Comments (5)

  • Bob: For those of us from the Pacific Northwest, foresty is NOT extraction, but renewables — there are areas in Washington State that have been harvested at least three times, 40 years apart. Coal, oil, gas, and minerals (gold, silver, et al.) need a bit more time than 40 years, so the issue has not come up. The point I want to make is that “data” that IT assembles and stores (and hopefully, on request analyzes and re-presents) is NOT a one-time use until empty thing like oil or gold, but a renewable resource like trees. I think an IT department that focused on being the “smart file cabinet” for an enterprise (trees, not gold) might have a bright future.

    As always, I am a big fan of your writings. This is a slight tweak to an otherwise great piece.

    Rollie Cole, PhD, JD
    Founder, Fertile Ground for Startups, Small Firms, and Nonprofits
    “Think Small to Grow Big”
    Author of WHOLESALE ECONOMIC DEVELOPMENT http://preview.tinyurl.com/wholesaleeconomics

  • If it is really going to be ITaaS, then it must be subject to market forces:

    1) It must compete with outside vendors to keep its business, and

    2) It must be free to sell to outside business. If it cannot, then the separate run as a profit making unit, fails because it is not allowed to develop a full market.

    The 2nd is the most important reason this approach is a very bad idea. It has a built-in conflict between self-management and enterprise security.

  • Would it be useful to think of IT as a non-profit type of service/business, or does that ruin the notion of “business” being efficient? Non-profit organizations can have different models from for-profit businesses, since they are not out to make money, but basically to cover their costs to provide a service.

    I was thinking of a trade-organization type model – you are marketing to a specific set of people (those on your trade/company) with a common/specific set of needs. A good trade organization will have a unifying “we’re in this together” affect on their market (trade/company). But the non-profit in this case still has to work hard to maintain their membership – they have to offer real value, and do so efficiently to keep their costs down.

    Another metaphor/analogy might be as a utility, like electricity or the phones (which if phones haven’t been integrated into your IT department yet they probably should be, or will be soon).

    I don’t know if this is a useful addition to this discussion, or a useful way of thinking about an IT department, but it’s what came up when I read your column and it won’t let go.

    I agree with your main tenet that thinking of any one department in a business as a separate business is rather silly. You can have an organization that is a collection of separate businesses, but that’s the model for the org as a whole. If the model is a single company, then each department is just that – a department – and not a separate business. So the tightrope you walk is to be as efficient as possible while meeting the needs of the whole organization. Which is enough of a challenge without throwing other elements at it.

    • Sara … this is just my initial reaction and not a well-thought-out response. What it is: The difference between for-profit and non-profit businesses is smaller than you might think. I’ve worked for trade and industry associations, and consulted to several charitable organizations, and in all cases they still need to engage in sales and marketing, still have to focus on growth (because steady-state inevitably becomes shrinkage) and have to operate in the black.

      The big differences are that (1) they don’t get to accumulate large cash reserves … or at least they aren’t supposed to … and so long as they’re in the black they’re okay – there isn’t a level of return on investment they’re supposed to generate for shareholders.

      More thought and I might reach a different conclusion, though …

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