To answer the customer’s question, “How do I get from point A to point B at a reasonable cost?” Uber’s answer was not to launch a cheaper taxi service but to provide a marketplace to connect service providers with customers. In other words, customer-centricity is at the heart of Uber’s business model.  

There was a time when delivering the best product for the best price was enough to keep any firm ahead of the competition, but with globalization pushing product prices down, and products being commoditized, companies are turning to services to gain that critical competitive advantage. A number of firms that are seeing success, have made a transition from being product-centric to solution-centric organizations.

Service monetization is a business model that provides solutions to customer needs and in turn, empowers the company with the ability to monetize its products and services. As a result, customer engagement increases as we move from product to outcome-related services. Increased customer engagement provides more opportunities for the service provider to understand customer needs and serve those needs (cross-sell and upsell) to strengthen the relationship further.

The Service Monetization Journey

We see three types of service monetization journeys for organizations, depending on where they are in the adaption process. While several companies are already well ahead in their journey to offer their products as services, there are many others who are currently exploring ways to monetize better, and others who have few uses but are thinking of expanding. Each company has a different challenge and approach as they move further on their journey – ranging from defining the use case, to customer adaption, to continually improving the customer lifetime value (See Figure 1). 

The Essentials for Service Monetization

Service monetization involves significant and sensitive change management during transition from product-centric/perpetual license business to service-centric business. The change needs to be managed carefully with proactive communication on what changes are coming, what needs to be done, and how will it impact people. Firms will need to change their mindset.

Product/perpetual licensure drives capital development upfront and on time, whereas services make money over time. Firms, at times, find this difficult to reconcile and often do not see the expected profits when first deploying service monetization. In order to achieve profitability, firms need to understand the financial implications of the new business model and its effect on firm performance.

Traditional business processes and Key Performance Indicators are radically different from the capabilities required to support service monetization. Companies need to radically transform multiple aspects of their business, from defining success criteria to people to business metrics and of course, their products and overall quote-to-cash process.

Here are some key process and technology changes required to support service monetization:

• Move from standalone to connected products
  • Data collection and validation
  • Product API/telemetry
  • Cloud enablement
• Create customer experience and engagement
  • Map customer journeys for all touchpoints (freemiums, upgrade/downgrade, conversions, renewals, true-ups, etc.)
  • Insight-based and personalized customer engagement
• Reorient from product selling to solution selling
  • New ways to manage alliances, channel partners and multi-faceted business models
  • Sales commissions
  • Insight-based marketing
• Reimagine offer management, pricing, rating and charging
  • SKU design, tiered pricing, connected products
  • Mix of one-time, usage-based and recurring pricing logic
  • Time to launch new offerings
  • Dynamic promotions and discounting
• Redefine configuration price quoting
  • Configurable products across service lines (address customer issues as opposed to selling own service lines)
  • Order capture and orchestration with multiple fulfillment mechanisms
  • Multiple order types with multiple business rules
• Transform the invoice, revenue recognition, credits and collections
  • Customized billing and revenue recognition
  • Revenue share models

Financial case management service monetization begins with uncovering the customer’s unmet needs and knowing how to provide a wonderful experience in meeting them. Service monetization is not easy and firms need strong leadership and help from experts to define the roadmap, and enable technology and change management. In the end, service monetization pays off due to value creation.