One of the terms du jour is „industry cloud“. We hear it even more often than even platform or CX at this time. Why is that? Why do we speak about them only now and not for a longer time? After all, we have seen industry solutions forever, albeit on premise. Yes, the concept of vertical solutions is that old. What is the value of an industry cloud? How does “industry cloud” differ from “industry solution”? And does this term really describe what industries need?
These are only some of the questions that we wanted to discuss with Vinnie Mirchandani as part of aCRMKonvo.
Hurricane Ian intervened and Vinnie had more important things to do than a CRMKonvo. Luckily, everything turned out well for him.
Good for the CRMKonvos team, that friend and Enterprise Irregular Jon Reed could jump in to what turned out to be an even more interesting topic than we hoped for. We will continue this discussion with Vinnie on a later occasion. He has quite something to say about industry clouds, and comes from another angle than Jon.
The problem with industry clouds
Most business applications have started their life as horizontal applications. This makes a lot of sense, as a good deal of the functionality that a business needs, and the application offers, is not exactly industry specific. Instead, it is applicable across a range of industries. Therefore, business software vendors at first concentrated on developing horizontal functionality, as this functionality is reusable across and customized for numerous industries.
Often with only little effort.
This applies to SaaS software as well as it did apply to on premise software back in the day.
So far, so good. One challenge is, of course, that it is not always that easy to configure a business app to specific needs that easily. This, on the contrary, often needs substantial effort and knowledge.
The result is that horizontal solutions often under-deliver, as one can see in soaring implementation costs, even in times of the cloud.
Another challenge is that an industry solution is first of all a solution, which means it regularly stretches across more than one business application. This requires integration between the involved applications. This, in turn, is something that not all software vendors can deliver. The same is true for many system integrators as there are many ways to integrate different applications.
These deficiencies, combined with one of the main promises of the cloud, led to increased silo’isation of the application stack that got (and still gets) implemented at businesses. In addition, ERP software has a longer history of targeting industries than e.g., CRM software or analytics software. When it comes to industry specific CRMs, Jon rightfully names the acquisition of Vlocity by Salesforce a milestone that brought this topic into the forefront of business software vendors’ minds again. Again? Yes, again, as there have been Industry flavored CRM solutions already at the beginning of this millennium.
The real value proposition
Industry clouds target industries and therefore promise the delivery of specialized functionality at low implementation cost. This is quite a big and enticing promise, especially in uncertain times like these, when not only efficiency but, even more so, cost play a major role. Implementation projects need to be short and deliver value fast.
According to Jon, there is even more value. As this specialized functionality must include responding to new or changed regulations, the customers do not need to take care of this anymore. This also reduces technical debt in the customer systems. In addition, and this is a fascinating thought, in a multi-tenant cloud environment, a solution vendor can provide all sorts of (anonymized) benchmark data. This data can help companies discover where they can improve relative to their peers. The challenge is, of course, data ownership and privacy.
Do industry clouds live up to this promise, or are they really “a great way to advance your career in marketing and our industry by taking existing functionality, creating a nice sexy new term that gets everyone excited and then, when they start scratching under the surface, they get more and more confused” – as Jon put it provocatively?
Or is this not that provocative a statement at all? We need to acknowledge that businesses need to make revenues and profits. These come from markets and it is a job of marketing to create and/or nurture markets for their company.
Well, according to Jon, industry clouds do not live up to their promise, yet. One important reason for this is that they regularly replace software that is very mature and in use by businesses for a long time. In contrast to this, a newly built software just cannot cover the full breadth and width of functionality that businesses require. Sometimes this software even misses on functionality that is essential to run a business.
Are industry clouds the right thing?
Another reason is that “industry cloud” is not about technology, which is what the term industry cloud suggests. The term delimits thinking. Instead, we need to think about an “industry-ecosystem” that surrounds the software. The software is still important; but it is only part of the solution. An industry solution requires domain expertise, which is often not available within the software vendor. It requires the frequent or constant exchange of domain experts with each other to identify how to solve challenges best. Good places for this knowledge exchange are industry events or even gatherings that are part of vendor events. According to Jon, this can even work well for smaller companies.
These domain experts then need to work out with engineers and UX experts how to implement the solutions. This can create a winning proposition.
This is why I prefer to talk about industry solutions and rarely use “industry cloud”. Industry solution does not have the strong focus on technical delivery that the term industry cloud has. It gives a more holistic view of the idea.
How to create winning industry solutions
This leads directly to the question of how to fill the idea with life.
An industry solution always needs domain expertise.
Additionally, an industry solution requires a strong technical platform. This platform enables the building of industry specific functionality, based on horizontal functionality. The exception is the vendor targeting a small number of industries.
Creating winning solutions requires the platform provider having the strength and honesty to not only say where they are strong – but also to state where they are not!
Why?
Because this is exactly the spot where industry play and ecosystem play overlap!
Furthermore, it builds trust. No company can be equally good at everything. Once companies admit weaknesses, an ecosystem around industries can emerge. Then they can bring together domain and software experts. Partner companies can fill in the identified gaps. Practitioners can design solutions that augment each other. All this becomes easier if the partners can trust the platform provider.
So, an industry strategy needs to be part of an ecosystem- and partner strategy.
This strategy needs three industry buckets.
The first bucket contains the industries that the platform owner delivers solutions for, or intends to deliver solutions for. These are the industries where the platform owner feels strong or already has a strong offering. Partner companies are not forbidden to provide solutions for these industries, but they are aware that they are potentially competing with a big company in any given deal. Partner solutions are still also free to augment these industry solutions for use cases that are not covered by the platform provider.
The second bucket has all the industries that the platform provider leaves to partners. They can build their own industry solutions without competing with the platform provider. The platform owner should even support the creation of these industry solutions. The important part of this is that this is not a temporary commitment by the platform provider but an assertion. This is about trust. Removing the risk of getting crushed enables ecosystem partners to confidently invest in a way that helps all stakeholders: customers, platform provider, partners.
The third bucket is the most interesting one. it covers the industries that the platform provider may or may not enter. The platform provider should also indicate the likelihood of its entry into these industries. While this involves some uncertainty for ecosystem partners, it also provides the transparency that is essential to take investment decisions.
These buckets need some stability. Still, they can and will change over time. However, changes should not come as a surprise to the ecosystem partners. Partnership requires mutual trust and respect to be valuable for everyone. The platform provider shows this trust and respect by committing to provide a stable framework. This gives the breathing space for the partners. These partners commit to providing complementary solutions.
The winner is the customer.
The result of the customer winning is that the other ecosystem members win, too.
Industry solutions are a platform play!