Thursday, September 18, 2008

What are the technology vendors to do?

When I agreed again to write this blog, I thought about the previous year’s challenge of identifying appropriate stories to reflect upon. So many announcements come out at Sibos and so much networking goes on that it’s hard to see patterns until the dust has settled. Little did I expect that stories outside the exhibition hall would dominate. Indeed, in my first blog of the week, written just hours before Sibos started, the anger that seems almost understated.

So what does this all mean? A theme that has begun to emerge over the week is the need to change the business model. The traditional “You buy, I sell” will become even more difficult as the banks start to say, actually, “We have no money to buy” or even “Bye-bye” (sorry, a terrible pun). How do technology suppliers ensure they can maintain their share of the banks’ IT investment budgets in an increasingly competitive marketplace?

If we look at other industries, we see that much innovation has occurred in the business models under which they operate. Consider the product-bundling innovations of operators in the telco market. (Note that the telco market was commoditised long before the payments market, and yet operators grow and prosper.) The internet has created all sorts of more radical models, from “reverse auctions” to the “freemium” model, whereby users get the basic service for free but pay small incremental charges for additional services.

So what can vendors do? In reality, we’re seeing some innovations. For example, delivering a service by ASP or SaaS necessarily shifts the model. And the fixed-fee model of SWIFT itself is a form of price bundling. That model has definite appeal with its lower-up front costs and “pay-as-you-go” mentality.

But that isn’t enough. Or rather, some vendors have an opportunity to move from the role of trusted supplier to trusted partner. Cost is a key element, but not the only one. Risk is a key element. Structuring the deal in such a way that the technology supplier has “skin in the game” shares the risk but also the reward.

A supplier’s showing faith and conviction in its own ability to deliver the vision and solution changes the banks’ perception of the supplier. We’re seeing this effect in some companies already but it is a well-kept secret. Those companies are now aiming for the next step — moving from trusted partner to trusted advisor.

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