Cloud IT Renewals Depend on Value Delivered, Not Costs

We are still seeing the impacts of the Cloud IT revolution. Cloud computing is changing many things about how organizations buy, deploy, use, and gain value from information systems. One of the most interesting and dynamic emerging trends is that for many organizations, the focus is shifting from the technology itself to the value the organization realizes from using the technology.

The move to “as a service” is also changing the way organizations make decisions regarding the initial purchase and the renewal of the software. If you ask someone who works in traditional service industries – lawyers, accountants, wait staff, bartenders – they will tell you that people decide to come back (renewals) based on the quality of the experience and the value the individual receives from their experience with the service.

This flips the traditional perspective of technology on its head. Once viewed and evaluated like a product you would purchase and take home to keep, technology is now viewed and evaluated as a service. Cloud buyers and vendors are slowly catching on to just how important value creation from the use of the software is for their success.

One software vendor I spoke to indicated that they were great at landing an initial sale, but they had over 50% turnover in their mid-tier market alone just because the system was not being used and therefore not delivering value to the client organization.

Will you renew your cloud subscription?

When you first decide to purchase a cloud IT system, you do so because of the promise and potential for you to realize the value in the future (after you start using it). Even with lower upfront costs, you probably put together a business case that defines your expected costs and expected return.

Before cloud systems became popular, many organizations only looked at their business case during budget discussions when making the initial system purchase. Once the decision was made and the money was spent, few organizations would come back to measure their actual ROI on their IT investment. There was little need to do so – after all, the money was spent and gone.

But what if you could get out of a bad investment before you spent all the money? With cloud systems, you can.

Cloud IT subscription-based pricing changes the buying decision process

Cloud IT, with its subscription-based pricing and defined contract periods, enables organizations to evaluate the value they are actually receiving from their cloud investments and pull out of bad investments. In essence, the contract renewal date inserts a logical breakpoint in the buying process. It also changes how you make buying decisions.

Cloud renewal decisions are different from the initial purchase decision

As I mentioned, the initial cloud buying decision is made based on expectations for future results. With no direct history with the system, you make your decision based on the word of others (the vendors, vendor-provided references, online reviews, etc.) and your confidence that you can get similar results.

Renewal decisions are made primarily on your direct experience. You evaluate your experience implementing the system, the level of adoption you have achieved, and any specific success metrics / ROI calculations. This experiential information then creates a context in which you evaluate the potential of the system to deliver additional benefits in the future.

Need to focus on cloud user adoption and ROI

So, what does it all mean? It means that clients (buyers) and cloud vendors both have a vested interest in making sure the cloud system is fully adopted, and there’s clear evidence of the value you received from the cloud system.

It means that having great functionality and a low price point is not enough to get you to renew your subscription if you aren’t getting any value. It means that there is a new standard for success when it comes to investing in technology solutions. And it means that you will need an ongoing program to drive user adoption, making sure you are getting the ROI you need.

After all, as soon as the system stops delivering the value, you will stop paying for it.

Most software projects fail to deliver the expected business outcomes because of the approach the buyer takes to getting the system live and driving adoption. Most buyer’s organizations don’t have the expertise, tools, and capacity to deliver their own success.  This short video explains many of the methodological and structural problems organizations face when dealing with software.

If you are looking to help software buyers create their own internal software success programs, Success Chain can help.  Contact us to find out what we can do for you.