Tech moved to the Next Big Thing, but your customer hasn’t
Enterprise tech deployment lags innovation; monetization can change the equation
Tech is built on disruption. PCs overtook mainframes, the Internet transformed software and infrastructure into a service, and generative AI will do this again. New winners emerge from nowhere, old players die off. Customers flock to the Next Big Thing, excited for the gains. But do they?
Jamie Dimon’s annual letter to shareholders is a reminder of what a real enterprise customer faces. JP Morgan is a heavily regulated financial institution that wants to be at the cutting edge; its $12B IT budget and 57K tech workers show its commitment. It is racing ahead on AI with its coterie of data scientists and ML engineers:
Artificial intelligence (AI) is an extraordinary and groundbreaking technology. AI and the raw material that feeds it, data, will be critical to our company’s future success — the importance of implementing new technologies simply cannot be overstated. We already have more than 300 AI use cases in production today for risk, prospecting, marketing, customer experience and fraud prevention, and AI runs throughout our payments processing and money movement systems across the globe. AI has already added significant value to our company…
We also have a 200-person, top-notch AI research group looking at the hardest problems and new frontiers in finance. We were recently ranked #1 on the Evident AI Index, the first public benchmark of major banks on their AI maturity.
Yet for all that progress, its Cloud migration journey has just begun:
We have spent over $2 billion building new, cloud-based data centers and are working to modernize a significant portion of our applications (and their related databases) to run in both our public and private cloud environments. To date, we have migrated approximately 38% of our applications to the cloud, meaning over 50% of our application portfolio (this includes third-party, cloud-based applications) is running on modern environments.
Tech companies need to understand that customers may not be ready to modernize, and Cloud migration is a case-in-point. Customers face a number of challenges, such as prioritization and talent, that may keep them on-premise. Pricing and licensing are powerful levers to incentivize migrations. But each has its tradeoffs.
Your customer isn’t as advanced as you think
Cautionary tales abound of organizations that don’t modernize: the on-prem Exchange Hafnium exploit, the Southwest scheduling system meltdown that cost $1B+, and the COVID unemployment benefit breakdown tied to COBOL (a 60-year-old coding language). Presumably this would be warning enough.
But modernizing isn’t easy or cheap. Lack of resources, tech talent, and org buy-in add to the inertia. Even those with means and motive (JP Morgan) prioritize easier and revenue-critical tools. CRM is a good counterpoint: it’s tightly integrated into other tools and processes, and host LOB apps that are costly to move. I remember how one IT exec described how he planned to handle his complex migration: retire before it happens. Little wonder customers are loathe to upgrade.
Tech companies can use product and customer success to reduce the friction. Product parity reduces the app compatibility barrier. Smooth migration tools minimize the lift. Deployment experts (either natively or via partner ecosystem) set customers up with a roadmap. And customer success teams help answer questions along the way. But at the end of the day, customers still need a compelling reason to move.
Customers still face economic disincentives to modernize. They face price increases when they move from fully-deprecated on-premise licenses to subscriptions. One-time migration costs can also be steep.
Monetization can nudge – or shove – a customer to modernize
Pricing can change the economics of a migration, either inducing customers to move or easing the pain. Ratchet up the price of legacy products and you both benefit from price insensitive customers and induce others to move – witness IBM’s steep ratchet in on-prem prices. Alternatively, there’s the carrot: give legacy customers preferential pricing or offer pots of money to assist customers with those migrations.
An overlooked partner to pricing is licensing. Again, there are sticks (e.g., end-of-support, reduced upgrade requirements, etc.) and carrots (SAP’s Cloud Extension Program that enables customers to avoid double-paying for on-prem products). Licensing, unlike pricing, can ease the migration by giving customers flexibility to migrate at their own pace or avoid double-paying for tech they’re already used to.
The mix of carrots and sticks depends on the objective (profitability, customer satisfaction, product impact). There are obvious reasons to be harsh: it’s more profitable, undoes customer inertia, and drives Cloud usage. But prioritizing the stick and profitability can come back to bite. A migration is a good inflection point for a customer to evaluate their options. If their most recent experience is an ultimatum or punitive deal, is that vendor really the best partner for such an undertaking?