What to do? (business side) Long term contracts (24 months locking) –Remove some of the value proposition –Often very large churn at end of contract –Or “re-acquire” customer (more SAC) Get money upfront –No more churn sensitive Lower SAC –Distribution channel (e.g. white labeling)
What to do? (architecture side) Have a CLIENT strategy! –Not subsidized device (otherwise SAC) Examples: –Mobile phone (of course) –Heart monitor device connected to cloud service –Appliance
Selling Hosted Version vs. License ↓ Lower margins –Cost of sale is higher e.g. hardware depreciation (from pure bits, to bits + atoms) ↑ Bigger addressable market –Not only ‘software line’ in IT budget Illustration (overly simplified math): –80% margin on $1M (software) line -> 800K –20% margin on $5M (software + support + hardware) line -> 1M
Attached Services Additional revenue streams (typically with much lower cost of sale) Leverage the installed based The well proven “any fries with that?” strategy
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