Tag: Pricing Content

Unlocking Revenue Potential: Service Provider Strategies for Tools/Accelerator Monetization | Blog

IT service providers are increasingly exploring monetizing their proprietary software tools and accelerators as independent products. This strategic decision can create new revenue streams and differentiate providers. While these accelerators offer numerous benefits, they face challenges in gaining client acceptance. In this blog, we explore the pricing strategies for accelerators and discuss five crucial factors that providers need to consider to maximize the value of their assets. Contact us to explore further.

IT service providers have invested heavily in developing homegrown intellectual properties and proprietary accelerators, tools, and software solutions that have demonstrated impactful results and value creation for clients.

Many providers are now actively pursuing monetizing these assets as standalone offerings. TCS and HCL have created subsidiaries, TCS Digitate and HCLSoftware, respectively, focusing on software and accelerator monetization.

Suppliers have developed software solutions used in different phases of the technology development lifecycle (build, quality assurance, run, modernize, and transition/transformation). Some examples are TCS Ignio and Mastercraft, Infosys LEAP and Nia, Wipro Holmes, and HCL Tech Advantage.

Let’s delve into the opportunities and obstacles service providers face in this pursuit.

Challenges to asset monetization

Despite the money-making potential, success has been limited for various reasons. Some of the primary factors we have observed contributing to this shortcoming include:

  • Internal challenges – Difficulties with legal and procurement process delays in maintaining and executing separate license agreements for these accelerators
  • Post-implementation challenges – Issues related to continued support and maintenance requirements of the accelerators, particularly after the end of services Statement of Work (SoW) term, and the ongoing need for product innovation and marketing investments
  • External challenges – Struggles with low revenue and profitability from product licenses

How accelerators are sold

Let’s take a look at the two ways accelerators are sold:

  • Bundled with services: Service providers frequently include accelerators in their solutions and position them as key differentiators. These accelerators are bundled with services within the provider’s scope and delivered to the customer. This model is preferred when:
    • The accelerator adds value to the existing services offered
    • Customer preferences and market trends show demand for all-inclusive solutions
  • Licensing models: Licensing models can be structured as follows:
    • One-time fee – Service providers propose that customers use the capabilities of their accelerators for a one-time fee
    • Recurring fee/subscription-based – Charging the customers for accelerators through recurring monthly or annual fees is another prominent commercial model

In addition to the one-time/recurring fee, some providers charge for professional services separately. This model is preferred when:

    • The accelerator addresses specific pain points with a standalone solution
    • Customers seek flexibility and independence in using the product

While service providers ultimately aspire to move toward standalone licensing for accelerator monetization, bundling with services is currently the more dominant model. Providers tend to leverage services to grow the reach and mindshare of their accelerators through bundling.

Service providers typically provide the costs of these assets separately in deals where external advisors are involved or where the client’s procurement function is mature. There is a growing emphasis among service providers to focus on asset-led models, with many expecting high asset revenue growth in the coming years.

Research findings

To unlock the value that service providers can realize through their asset and accelerator monetization, we conducted detailed research to understand the key areas that providers must consider.

Here are five key insights from our research:

  1. Positioning: Providers position assets as “investments” in some deals until a predefined threshold is met. This strategy helps to increase the penetration of their specialized accelerators and tools in a client’s ecosystem. The provider then starts charging for these assets when the client has consumed services proportionate to the initial investment
  2. Value proposition: Providers tout numerous benefits for clients using their accelerators, including increased productivity, streamlined costs, reduced rework, automation of routine tasks, instant simulation, end-to-end incident remediation, predictive failure, and proactive decision-making
  3. Fee amortization: The period over which the accelerator fee is charged is determined by its share of the total contract value (TCV). For deals where the share of accelerator fees is minimal, the accelerator fee is charged in the first year. Conversely, the duration is longer when the share of the accelerator’s fee in the overall deal value rises
  4. Return on investment (ROI) articulation: ROI articulation is critical to reinforce the client’s confidence and willingness to invest in accelerators. ROI in the 2.5 to 5 times range has been observed in large deals covering services across the technology development lifecycle
  5. Sales channel: Service providers use different sales channels to increase sales of their assets, including leveraging channel partners, independent software vendors (ISVs), the third-party marketplace, and, in some instances, their subsidiaries

As service providers move towards establishing alternate revenue streams through their accelerators, the observations in this blog will help move them toward devising a robust accelerator monetization strategy.

Everest Group collaborates with leading global and Indian service providers to help identify suitable commercial model(s) and pricing strategies for tools and accelerators. To discuss software solutions and accelerator monetization in more detail, contact Rahul GehaniUdit Maheshwari, and Manan Arora or email us at [email protected].

Broadcom’s Acquisition of VMware: Navigating the Impact on Pricing | Blog

Broadcom’s acquisition of VMware represents a significant shift in virtualization and cloud computing pricing, licensing, and product offerings. Explore the implications of this deal and recommendations for customers and partners to navigate these sweeping changes in this blog. Contact us to discuss.

In a move that has sent ripples through the tech and cloud services industry, Broadcom’s acquisition of VMware marks a pivotal shift in the virtualization and cloud computing landscape. This deal has led to sweeping changes in VMware’s product offerings, licensing models, and, most notably, its pricing structure.

Broadcom’s strategic move from perpetual licenses to subscription-based models and bundled offerings has significant implications for VMware’s existing and prospective customers. Let’s delve into the changes further.

How will the changes impact cost

Since being acquired by Broadcom, VMware has shifted to a more streamlined, subscription-based model as part of a strategy aimed at simplifying offerings and aligning costs with customer usage patterns.

This new strategy will impact user segments in different ways. Here’s a look at the key changes:

  • Consolidation into two primary bundles: VMware has significantly simplified product offerings from nearly 9,000 product SKUs to two main bundles: VMware Cloud Foundation (VCF) and VMware vSphere Foundation (VVF)
  • Transition to subscription-based models: The shift from perpetual licenses to subscription access will allow customers to benefit from recurring payments instead of one-time purchases
  • Impact of core-based licensing: Moving from socket- to core-based licensing could significantly impact costs, especially for organizations with high-performance computing requirements
  • Mandatory core and socket purchase requirements: The new requirement of buying at least 16 cores across a minimum of two sockets (effectively requiring 32 cores as a base) will significantly increase costs for some users
  • Pricing structure adjustments: The new subscription model includes pricing tiers and bundled offerings. Discounts can range from 8% to 35%, depending on the bundle and subscription term. This restructuring might reduce costs for customers deeply integrated into VMware’s ecosystem but dramatically raise expenses for users buying single products

Market and customer reactions to the acquisition of VMware

VMware customers have reacted to these changes with concern, confusion, and frustration. The end of perpetual licenses and the initial uncertainty about continuing the partner program have been particularly contentious.

Educational institutions and small to medium-sized businesses that previously received significant discounts are now grappling with increased support costs and the elimination of traditional discount structures.

The market’s reaction has been further exacerbated by reported delays in licensing renewals and support and OEM portals not operating, disrupting license activation and support services.

Adapting to change

Customers and partners should reassess their VMware strategies in response to these significant changes. We recommend existing customers take the following steps to adapt to the situation:

  1. Explore alternatives: VMware customers should identify alternative vendors to the existing VMware product stack to alleviate cost increases stemming from the new subscription model. Given this transition will require considerable time and effort, customers must consider their long-term virtualization strategy when moving to an alternate product
  1. Renegotiate with VMware: Customers should renegotiate their VMware contracts while exploring options. They should seek clarifications on product bundling and renewal terms and understand the new model’s impact on their VMware product suite and total cost of ownership (TCO). In addition, customers should seek information on Broadcom’s discounts against deal term commitment and leverage this information to strike a deal that gives them maximum cost savings
  1. Understand the market pulse: The unclear changes in the licensing model and pricing of VCF and VVF bundles have created uncertainty. Most customers are struggling to navigate this unprecedented change in their virtualization journey. Customers need to stay agile and informed to form effective virtualization product strategies

The outlook for the industry

Broadcom’s acquisition of VMware represents a significant turning point in the cloud and virtualization industry, with profound implications for pricing, licensing, and product offerings.

As customers and partners navigate this evolving landscape, the need for transparency, flexibility, and strategic planning has never been greater. While challenges lie ahead, opportunities also exist for those prepared to adapt to these changes. The coming months will be telling as the industry adjusts to a new era of cloud computing and virtualization services under Broadcom’s ownership of VMware.

To discuss Broadcom’s acquisition of VMware, contact Ricky Sundrani, Vaibhav Jain, and Udit Maheshwari.

Explore outsourcing pricing trends in our webinar, Delivering Commercial Value in Outsourcing Contracts to APAC Clients in 2024.

Leveraging Contract Benchmarking: Strategies for Negotiating with Veeva Systems | Blog

This blog shares how Everest Group helped a large life sciences company negotiate best-in-class rates for Veeva Vaults and CRM during contract renewal negotiation. Continue reading to discover how contract benchmarking can empower your enterprise to make effective deals, or get in touch.

Veeva Systems, a cloud-based software provider, has established a prominent market position in the global life sciences industry. The business’ market success often leaves customers with limited to no leverage during commercial negotiations, with prohibitively high costs of switching to a different provider and few other viable market alternatives. This leads to difficulty when attempting to negotiate better contract prices with Veeva.

However, by gathering accurate contract benchmarking data for the various Veeva products, procurement teams can negotiate top-tier rates and contract terms.

Let’s explore an example of how Everest Group helped this large US life sciences company identify savings opportunities in their Veeva Vaults and CRM contract renewal negotiation.

The supplier background

Veeva Systems offers several software products to help clients capture clinical trial data, enhance regulatory compliance, control quality, manage adverse events for clinical and post-marketed products, and more.

In addition, the company’s full-fledged CRM suite, Veeva Commercial Cloud, enables sales, medical, and marketing teams to work together more seamlessly. Customers also use Veeva professional services to implement Veeva products, manage programs, configure applications, integrate or migrate data, and garner sampling expertise.

Veeva has created a strong foothold by leveraging its state-of-the-art product suite. Most major pharmaceutical companies use one or more Veeva products. We have observed that Veeva’s wallet share has significantly increased with most customers over the years, due to the widespread adoption and use of their software products.

How we helped the customer 

Like many other existing Veeva customers, our client’s spending with Veeva increased significantly over time. The renewal proposal was nearly 2.5 times their current spend. To help the client get the best rates, we leveraged our internal contract database to identify similar large Veeva deals for the same Vaults, CRM, and professional services.

We followed our standard rigorous normalization approach to identify deals in our contract database that were similar in nature and size to the client’s deal with their software provider. This ensured a like-to-like comparison and offered contextual benchmarks for the client.

In addition to providing the client with the price benchmarks for various Veeva products and services, we also shared some tactics to help them negotiate effectively with Veeva.

Some of the key recommendations were:

  • To seek a ramp-up plan instead of further negotiating peak prices. This provides the customer with the flexibility to pay a fee lower than the peak price for the initial one or two years, allowing them to optimize the total contract value (TCV)
  • To leverage year- and quarter-end sales team targets to get extra discounts. Veeva may agree to higher discounts in contracts signed during the close of their fiscal year or quarters than other times

While each relationship with Veeva is unique, we firmly believe these recommendations and the right contract benchmarking can put any enterprise in a better negotiating position.

To discuss software contract negotiation or for a detailed analysis, contact Rahul Gehani and Udit Maheshwari or [email protected]. Explore Everest Group’s contract benchmarking offerings, or join our LinkedIn Live discussion on delivering commercial value in outsourcing contracts on.

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