Tech companies may seem to be the winners in the pandemic, but are they truly embracing demand with a commercial revolution of their own? We interviewed Nick Zarb, Eddie Hartman, and Deepak Sharma to find out how commercially creative software, internet, and media companies really are…
Despite a global pandemic, the decade seemed to start off strong for the tech industry. The Financial Times recently described 2020 as tech’s leap year. We saw how Netflix reached a record number of subscribers. Peloton’s revenues were up by 139 percent. And Zoom found itself on the Oxford dictionary’s “Words of the Year” list. Would it be safe to say that software, internet, and media companies have truly thrived in the demand revolution?
Nick: There is no denying that digital media demand and consumption exploded during the pandemic. But all has not been plain sailing, with many players such as HBO Max struggling to retain customers given the amount of choice available. You also mentioned Zoom. Their exponential growth was soon followed by a security crisis. As more and more customers used the service extensively, Zoom had to shift product development to security offerings and putting the right services in place to support their customers. So while the demand revolution has brought growth, this growth comes with its own problems. But certainly “nice problems to have”!
Eddie: In the software space, we have not seen the same surge in demand as in digital media. But we have seen a revolution in how people consume. Customers are also less willing to have multiple point solutions and are looking for end-to-end solutions that satisfy more of their needs. This explains the consolidation in the sector, such as Salesforce’s acquisition of Slack. From a company perspective, it's almost like the demand revolution is dragging them in one direction. Companies see the need to simplify, make things more intuitive, and move things onto the cloud. Whereas in the past they were content to have things complex, opaque, and on-prem.
Would you say that software, internet, and media companies have shown strong commercial creativity in how they respond to these challenges?
Deepak: Many creative elements we have seen so far are based on the revenue model. As budgets came under high pressure last year, the industry needed to find ways to give flexibility and control back to their customers. Some of the productivity applications, like Asana, Glacier, and Trello, saw strong growth as people had to figure out how to manage working remotely. Having levers such as pay-as-you-go, freemium models, and fencing between different deals has helped to accelerate their revenue growth as well as their overall customer base. Another example that comes to mind is Snowflake. They've taken the consumption-based model for Infrastructure-as-a-Service (IaaS) pioneered by Amazon Web Services 15 years ago, and applied it to enterprise-grade SaaS workloads for analytical data processing.
Are there any other areas where tech companies or their customers are placing more value on than they did prior to the pandemic?
Nick: The COVID-19 crisis drew attention to the importance of our communities and how we all need to support one another. But last year was not only marked by the pandemic. Another significant outcome of 2020 was the Black Lives Matter movement, which gave a big push for top tier tech companies to focus more strongly on supplier diversity. For example, over 15 firms joined forces with an open letter calling for diversity from their 20 largest suppliers.
Eddie: Before 2020, we had encountered some companies willing to pay a premium for job candidates who helped them meet their diversity and inclusion goals. However, this was more of the exception than the rule. Today, a third of S&P 500 executives have their compensation based on how the business meets these goals. That is a fundamental change.
Deepak: We also see strong growth from organizations that certify a company's practices. This is not just a check-the-box activity. It is a systematic way of requiring and measuring diversity and inclusion efforts. Previously, companies would screen over these things to say they had done their due diligence when selecting a vendor. Businesses that were ESG rated only did so because the requesting company made it a prerequisite for securing business. But today, Environmental, Social, and Governance (ESG) data and Corporate Social Responsibility (CSR) initiatives play an important role in procurement. Companies are aware they will have a bad reputation unless they're rated. Even before the business need arises, they're proactive about securing a rating because by the time an RFP rolls around, it will be too late to try to qualify.
Eddie: And ratings are not just restricted to companies in the US – this trend is really taking off in China, where companies are actively asking for their business practices to be inspected because they understand ratings will be key to success.
If a software, internet, or media company approached you today to talk about commercial creativity, where might that discussion begin?
Nick: Commercial data excellence. The industry is very data-focused. However, companies don't always use their data systematically for systematic commercial decision-making. As the world goes through dramatic changes, we have been helping our clients to use the data they collect to better predict customer behavior and make their insights a part of conversations with customers. All of their commercial data can be consolidated onto a dashboard that provides valuable insights into the health of the business, such as the performance of certain segments or markets, flagging of customers at risk of churn, and monitoring changes in willingness to pay.
Deepak: This ties into product-led growth, where companies rely less on sales teams and instead customers enter, use the products, and serve themselves during the early days of their journey. Only having identified potential do you start getting engaged with customers to pull them up to more advanced offerings. Rather than just throwing more field sales and marketing dollars at growth, we increasingly help companies monitor usage and look for signals in the data that customers are likely candidates for growth and to commit to larger contracts. These self-service models started in B2C, but during the crisis they have become very relevant in B2B too, due to the budget constraints we have already discussed.
Eddie: Product-led growth is being used increasingly by enterprise, too. Even Fortune 500s will see activity on a grassroots level, then the CIO will consolidate it, deciding to move into an enterprise footing. The reverse is also true, where companies that previously didn't have an enterprise motion are penetrated on a grassroots level and push up to higher economic decision-makers through a product-led growth strategy.
Just speaking in more general terms though, there needs to be a mindset change within the industry. Few companies are responding to the crisis as a true revolutionary moment. But 2020 changed so many things. Diversity and inclusion is not just a sideshow. Remote working is not just a blip. Suite selling is going to become more important to the C-level executive than point solutions. Companies planning to return to business as usual are going to be torpedoed by the relatively smaller set of companies that are taking these changes seriously.
Want to start a commercial revolution of your own? Reach out to Eddie, or Deepak today!
