Evolving from Software Vendor to Service Provider

Bright cherries in range

When one considers what it takes to evolve from a software vendor to a service provider, however, I think some vendors in the investment management industry are somewhat naïve. Certainly in the initial stages of this journey, vendors often think that the requirement is technical; it’s about putting their software in the cloud or delivering the software in a different way. These are considerations, of course, but what is more important is how the vendor thinks and behaves as a firm.

To begin with, a service provider must adopt a different technique of selling from a vendor; promoting software generally involves a brash and confident style, whereas selling a service usually includes communicating to the end user and therefore demands a more consultative approach.

Vendors also ‘sell’ the client whatever the client wants to hear, in terms of enhancements and customisation. Service providers need to have a deep understanding of what the industry uses and be able to convince the client of the benefits of moving from their current state to a shared platform. Every client that comes onto this shared platform needs to be a true ‘fit’ for the service, otherwise it could jeopardise the operational experience for all platform users—an issue with which software vendors do not have to contend.

Service provision also demands a distinct marketing message and a contrasting approach to customer service. In fact, the migration from vendor to service provider should affect almost every aspect of how the firm operates. During the transition period, vendors need to question whether they are providing both offerings to an adequate standard or compromising one in favour of the other. Are they bringing in the new skills that they do not possess or hoping that existing staff will have the ability to readily adapt?

I believe that some vendors on this pathway are doing little more than putting a different marketing spin on their software provision in order to convince clients that they are now a services firm, when in reality they are doing little more than implementing their own software.

There is also a substantial financial challenge involved in moving from a licence model to a services rendered model. Vendors need to appreciate that the large annual licences will disappear in favour of monthly fees that will require far higher levels of customer service and account management to retain.

As a buyer, investment managers need to recognise where a software vendor is on that journey and that they truly understand the transition that is necessary. If the vendor thinks that it’s offering is mainly concerned with software provision rather than service provision, then the client is likely to encounter problems. Buyers also need to probe into the provider’s understanding of what it means to provide a ‘managed service’; does the provider simply mean supplying the software and having a couple of technical staff on site to handle database tuning or other problems? If so, this is not a true managed service.

Some software vendors see the market demand for service provision and have witnessed their competitors moving into this space. Many of these vendors are not making the switch because they really believe in the service model, but rather it’s a defensive move to keep up with the competition.

In many instances the proposition offered by vendors will evolve into a hybrid of software and services. Regardless of this, unless there is a true appreciation of the journey required to provide world-class services, this hybrid will ultimately disappoint most users. Service provision requires new skills, a new organisational structure, closer understanding of business operations and many other changes.

Ultimately, I see more areas of investment management technology moving to a service model and away from straightforward ‘on premise’ software provision. The challenge for clients is to recognise those vendors who are truly committed to the shift and those who are paying little more than lip service to the transformational change that is required.