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Trends in Technology Services - Summer 2017

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Waterstone engaged with 25 technology-led companies over the past several months to capture the latest trends around Cloud, Services, and Customer Success. This document highlights key findings, perspectives, and insights.

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Trends in Technology Services - Summer 2017

  1. 1. Chicago | San Francisco | (877) 603-1113 | www.waterstonegroup.com Trends in Technology Services Market Insights: Cloud, Services, and Customer Success Summer 2017
  2. 2. 1Copyright © 2017 Waterstone Management Group LLC. All rights reserved. Trends in Technology Services | August 2017 Context Waterstone engaged with 25 technology-led companies over the past several months to capture the latest trends around Cloud, Services, and Customer Success. This document highlights key findings, perspectives, and insights. Companies range from early stage to Fortune 100 ~70% Software ~30% Hardware Participants were primarily director- level and above DEMOGRAPHICS
  3. 3. 2Copyright © 2017 Waterstone Management Group LLC. All rights reserved. Trends in Technology Services | August 2017 Five Key Findings The cloud shift continues unabated. Market pressure and new leadership are driving tech providers to compete in the cloud. For tech providers transitioning to cloud, having the right offers, migrating the base, and nailing the customer experience are all key challenges to overcome. The approach to Support and Services are evolving as tech providers focus more on customer adoption and retention. Tech providers view Customer Success as a critical capability, but may still be underinvesting. As tech providers expand Customer Success programs beyond their largest accounts, driving scale is becoming a significant challenge. 1 4 5 3 2
  4. 4. 3Copyright © 2017 Waterstone Management Group LLC. All rights reserved. Trends in Technology Services | August 2017 Cloud market is expected to grow significantly faster than the overall IT Services market through 2020. Subsets of the cloud market are expected to grow faster than others. Shift to the Cloud Primary Drivers of Cloud for Vendors Cloud Growth Market pressure and new leadership are driving tech providers to compete in the cloud New Management / Ownership Competitive Pressure Target Net New Customer Segment Sources: IDC: Worldwide Semiannual Public Cloud Services Spending Guide Gartner: Forecast- IT Services, Worldwide, 2014-2020, 3Q16 Update Waterstone Survey Results ~25 respondents 21.5% 5.1% 0% 5% 10% 15% 20% 25% Cloud IT Services 16.9% 30.1% 32.2% 0% 10% 20% 30% SaaS IaaS PaaS 1 2 3
  5. 5. 4Copyright © 2017 Waterstone Management Group LLC. All rights reserved. Trends in Technology Services | August 2017 • Companies are increasingly prioritizing subscription revenue as it is typically more highly valued by investors than one-time revenue. • Developing a new recurring offering, or recrafting a one-time offer as recurring, can be very challenging. • Legacy customers used to one-time fees may object to a recurring subscription. • Companies seeking to migrate existing customers to the cloud are targeting conversion of 25-33% of their base over a ~3 year horizon. • Successfully migrated customers typically see a subscription uplift, including more seats, new modules, enhanced services, etc. Cloud Transformation Challenges Launching the Right Subscription & Services Offers Migrating & Converting the Legacy Base Setting Profitability / Profit Margin Goals • The subscription economy requires different operational/financial targets and controls than the license/maintenance business model. • Subscription gross margins for SaaS range from 75-85%, and for hosted application management range from 65-75%. Offers, base migration, and customer experience are all key challenges to overcome Waterstone Survey Results ~25 respondents 1 2 3
  6. 6. 5Copyright © 2017 Waterstone Management Group LLC. All rights reserved. Trends in Technology Services | August 2017 • Define & launch premium support offerings • Integrate & streamline inbound support • Decrease support costs • Provide more in-product support via chat, bots, guided UI • Extensively leverage community & self-help Support and Services Evolution Changing Support Priorities Greater Shift to Tiers of Premium Service Greater focus on customer adoption and retention driving changes in Services and Support PS Viewed as Subscription Revenue Enabler Standalone Profit / Margin Generator Generate Enough Revenue to Cover Costs; Not Concerned with Profit Loss Leader or Cost Center; Focused on Enabling Product Revenue Growth As strategic focus of PS shifts away from pure revenue generation, companies are increasingly measuring PS expense as % of revenue of companies now offering tiered service levels • A named account manager • Better SLAs • More support channels • Proactive monitoring • Ongoing training • Annual health checks & QBRs • Custom configurations • Priority access to R&D • Support case analysis • Access to company resources Waterstone Survey Results ~25 respondents 75% Common Components of Tiered Service
  7. 7. 6Copyright © 2017 Waterstone Management Group LLC. All rights reserved. Trends in Technology Services | August 2017 Customer Success Is Ramping Level of Investment In Customer Success Tech providers view Customer Success as a critical capability, but may still be underinvesting 79% 21% Yes No Percentage with Dedicated Customer Success Function 0% 20% 40% 60% 80% 100% <5% of ARR 5-10% of ARR >10% of ARR Waterstone Survey Results ~25 respondents
  8. 8. 7Copyright © 2017 Waterstone Management Group LLC. All rights reserved. Trends in Technology Services | August 2017 Customer Success Challenges Customer Success Teams Still at Early Stages of Maturity Measuring Customer Success As Customer Success expands beyond largest accounts, driving scale is a significant challenge Customer Retention ($) ** NPS / CSAT Cross-Sell / Upsell Most Common CS Measures 90-95%+ NPS of 30 for Tech Companies 15-20%+ Typical Target Metrics Key strategies to accelerate Customer Success maturity include: • Institutionalizing processes • Using analytics • Using self-help / communities 70% 30% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Early stages – We haven’t defined the target customer journey, but know that we need to develop one Moderate – We have defined many target customer journey maps, however we still operate in silos Advanced – We are organizationally and operationally aligned to proactively engage customers across their lifecycle Net Retention*: 110%+ *Net retention rate is rate of customer renewals that captures the negative impact of lost customers, but also the positive impact of price changes, cross-sells, up-sells, and growth in usage or seats within the established customer set **Customer Retention ($) is inverse of churn Waterstone Survey Results ~25 respondents 1 2 3
  9. 9. Chicago | San Francisco | (877) 603-1113 | www.waterstonegroup.com Should you have any questions about these trends, or wish to discuss them in greater depth, please contact: Waterstone Management Group is a boutique management consulting firm that helps technology companies and their investors create measurable value by identifying and capitalizing on disruptive growth opportunities and by driving excellence in Services, Cloud, and Customer Success performance. Neil Jain, Partner njain@waterstonegroup.com (312) 508-6163

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