By: John Ragsdale
John Ragsdale is the distinguished Vice President of technology research for the Technology Services & Industry Association (TSIA). John’s expertise is in assisting enterprise technology firms with the selection and value realization of tools and platforms, with a constant focus on the customer experience.
Though the tech industry tends to look at moving from on-premise to Cloud as a fait accompli, the truth is this continues to be a challenge for many legacy hardware and software companies. According to TSIA’s benchmark surveys, 35% of total revenue for our support services member companies and 37% of total revenue for our professional services member companies are still derived from product and license revenue – not technology subscriptions. If you look at the top business challenges across all TSIA’s members, “Migrating On-Premise Customers to XaaS” shows up in the top 20 list of both our XaaS Product Management and our Subscription Sales research practices.
TSIA members report that the majority of their XaaS customers were originally on-premise customers, as demonstrated in the following chart.
Chart: Source of XaaS Customers
Source: R3 Poll Migrating Customers to XaaS, October 2020
This visualization reveals that of the surveyed TSIA member companies, more than half of their current XaaS business, 60%, came from existing on-premise customers. With the benchmark data showing that a significant portion of revenue is still being derived from legacy on-premise contracts, clearly there is still work to do in migrating these customers to new cloud subscription offers.
If convincing customers to move away from your legacy products and adopt your newer XaaS products is a challenge for your firm, this blog will offer five best practices to push these customers into the brave new world of the cloud.
1. Pitch to Business Users, Not IT
In my experience, companies who are dragging their feet on shifting to XaaS often have one thing in common: an IT department that is clinging to legacy technology. This might be done out of fear that a shift to the cloud will reduce reliance on, and headcount needed for, IT.
With this perspective, you can make faster and more productive headway by targeting those who will actually use your technology solutions day in and day out. Pitch the benefits of newer applications (more functionality, faster release cycles, lower ownership costs) to those who are more likely to recognize the positive impact your solution will have.
Business users may find they can finance subscription purchases out of departmental budgets with less IT oversight. If this is the case, be sure you are helping the business users make a clear case for ROI, using customer case studies and ROI calculators to realistically help them understand the potential of cost savings or increased revenue. In other words, arm the business users with the necessary ammo to combat any objections IT may raise. At the end of the day, the CFO usually wins over the CIO.
I’m not saying making an end-run around IT is the greatest approach for a successful technology project. However, granting the business users decision power for new technology that meets their needs, not IT’s, is important. With enterprises embracing digital transformation, IT needs to become more responsive to the business, not the other way around.
2. Consider Outcome-Based Pricing
For companies that embrace customer success and product-led growth, introducing value-based pricing is a growing trend. In fact, “Developing Outcome-Based Service Offerings” is the top business challenge over the last year for our Service Offer Management research practice. According to Steve Frost, TSIA’s VP & Managing Director, Revenue Research and Advisory, outcome selling is a new and improved approach to enterprise technology sales, and centers around two objectives:
- Providing priority business outcomes that your customer is trying to achieve.
- Allowing the supplier to demonstrate how their solution contributes to the achievement of the outcome.
Outcome selling is about leading with insights, sharing knowledge of what similar companies are doing, and then building the connection between your products and services and the customer’s desired business outcomes. It is critical to understand your customers’ outcomes and challenges in an effort to drive optimal adoption. Ultimately, your customers will renew and even buy more when their outcomes are achieved.
A few things that the transition to outcome-based selling will require:
- Involvement of customer success and customer benchmarking. Currently, only 19% of customer success teams have a customer benchmarking program. To cultivate an effective outcome-based offer, customer success needs to be aligned with the needs of the customer through each step of the journey. Benchmarking is critical to assessing their progress and identifying where additional onboarding or services may be required to accelerate time to value.
- Referenceable customers to illustrate specific metric improvements. To prove to prospects that you have a track record for delivering outcomes to customers, you need to build a library of referenceable customers who can share case studies of the business impact they received by adopting your technology.
- Stacking hands with sales. With outcome-based pricing, it’s not just your offers that have to change, but also your sales strategy. Only 29% of XaaS companies strictly enforce having the sales team capture desired outcomes of customers, and only 14% of companies have changed the way they hire and train salespeople to focus on outcome/value selling. Recognizing the process and culture change required to move to outcome-based selling is critical.
3. Target XaaS Migration by Account Segmentation
Once you have decided to make a stronger push for XaaS migrations, you may not be sure where to start. One way to approach this challenge is through using customer segmentation. This means identifying categories of customers, perhaps by revenue, industry, or geography, and prioritizing which groups of customers to target first. Once you identify the target you then need to build campaigns specific to those segments.
For example, focusing initially on your smaller accounts may be easier than tackling large enterprise accounts. This smaller focus may help you build your processes and messaging, allowing you to bank more success stories before moving upstream.
You should also include a clear assessment of which demographics will be more resistant to migration. Financial services may be more difficult due to privacy concerns. Government accounts have also been laggards on cloud adoption, though this is changing, and healthcare companies may cite HIPAA compliance concerns. There are also some interesting studies showing which geographies or countries may be slow to or resist cloud adoption. Pick your battles, and if any customer segments are known to be more resistant to XaaS migration, you may want to tackle them later.
Ultimately, you will need referenceable cloud customers across size, industry, and geography, so it may be necessary to consider offering incentives for early adopters and brands you would particularly like to have on your XaaS customer list. This may be a discount on the technology subscription, a free add-on module, or free or discounted services for data migration.
4. Eliminate the Pain of Data Cleansing/Migration
One of the most daunting tasks of moving a customer from on-premise to the cloud is the inevitable data migration it requires. For some of your customers, that might even be the chief concern or root cause of their hesitancy, particularly if they have had a bad experience with another vendor.
Unless data validation and cleansing are core competencies of your company, you should approach this topic with caution. Some angles to consider:
- Audit the legacy implementation. Your services team needs to have a good understanding of what parts of the product each account is using (and not using), catalog their customizations, and, specifically understand any changes to the data model they have made.
- Go for “out of the box.” Don’t automatically allow customers to recreate polluted on-premise customizations in the new cloud instance. Push them to embrace more “out of box” to lower ownership costs and ease future upgrades. Typically, no one even knows why many of the customizations were added, and if they aren’t being used, eliminate them. I always challenge companies to explain why their custom process is better than the out of box approach and does it provide competitive differentiation for your company? The answer is almost always no. Migrating to the cloud is an option for them to eliminate complexity and embrace industry standards and best practices, which may require some convincing for those who are change-resistant.
- Leverage business acumen. With an eye toward rapid adoption and delivering outcomes, it helps to include professional services consultants with business and industry acumen, not just technical skills. Just as with new customers, you should identify specific business goals for the new implementation, and focus implementation efforts on achieving those goals. This conversation may help them see why eliminating legacy customizations is the right thing to do.
- Personalize onboarding. Armed with the understanding of how they used the legacy system, create some personalized onboarding for users transitioning to the new system. Ensure this onboarding emphasizes the features they rely on the most and highlights any changes to legacy processes. Leaving them to their own devices using one-size-fits-all onboarding and training will only emphasize how different the new system is, create hesitancy, and ultimately slow adoption and user acceptance.
5. Be Certain You Are Delivering an Exceptional, Low-effort Experience
Migrating customers from a legacy on-premise implementation to the cloud is a big project. It is table stakes to focus on the internal journey to get all processes and handoffs right and as frictionless as possible before focusing on planning your external (customer) journey. This must be a seamless, low-effort experience for customers. Providing a smooth transition not only ensures a positive reputation for your products and your brand but also leads to positive customer references.
It is critical that you have alignment between departments and maintain hyper-paranoia around open communication and collaboration. Eliminate siloed systems or data and have a top-down edict against turf wars. Eliminating barriers between departments is important because it ensures everyone knows what they are responsible for, and how to pass each project from group to group. Customers cannot feel that they are being “tossed over the wall” at each step. Capturing and sharing commitments and challenges at each stage of the process is critical for teams further down the chain.
Whether it is someone in professional services, a technical account manager, or a customer success manager, someone must be the primary contact for the customer throughout the process. This person’s role is to make sure you are delivering an exceptional experience at every step, and they can quickly escalate any issue impacting the project timeline.
In my experience, legacy technology firms transitioning to XaaS offers must battle some cultural issues to become truly transparent, and truly focused on the customer experience. Customer success organizations are helping—and sometimes driving—this pivot. Approximately 55% of companies say that their customer success organization has executed a customer journey mapping exercise, usually for the first time in the company’s history.
Chart: Breaking Down Departmental Silos with Journey Mapping
Source: TSIA 2022 Customer Success Benchmark
As seen in this chart, when asked which departments are involved in the customer journey mapping exercise, there is good representation from sales, support, marketing, professional services, and product. It is slightly concerning, however, that only 5% of companies say they are involving customers. Don’t make the mistake of defining the ideal customer experience in a vacuum—be sure you are gathering input from customers as their expectations are evolving.
If you take care to clearly document the process as you start on those initial migrations and capture every lesson learned, best practice, each challenge faced and how you overcame them, subsequent projects will be easier to execute. Longer-term, you can introduce more automation, and hopefully a customer portal so they can easily monitor the progress of the project.
If you are struggling with legacy customers resistant to migrating to your new XaaS offers, you are not alone. The cost of maintaining those old systems is preventing you from making more investments in improving and extending your cloud products and growing your market share. I hope I have given you some ideas on how to approach creating a customer migration program, how to prioritize who to migrate, and how to ensure a positive experience for both employees and customers embarking on this journey.