Welcome to the B2B Value-Add Economy

Cross-posted with permission from Transaction World Magazine

Once upon a time, B2B hardware and software primarily consisted of expensive and cumbersome physical objects with little connection to real people and little value to add beyond the initial purchase.

Then the Internet arrived, enabling new companies to disrupt nearly every B2B product and service in existence. Traditional hardware and software started to become obsolete as products and services moved increasingly to the cloud. However, it’s not just about getting things to the cloud for the sake of doing so - the real value comes from the fact that it forces these disruptors to be focused on continuously delivering value to their customers.

For example, Box allows large businesses to host their documents in the cloud. Though this is obviously useful, Box is so much more than just a higher-tech replacement for what came before. Sure, the company has largely done away with the need for local storage folders, but businesses who use Box also benefit from superior customer service, guaranteed back-ups and airtight security. These features give business customers peace of mind around document storage and provide a strong incentive for them to leave their less-sophisticated storage systems behind.

In the field of customer relationship management, or CRM, companies like Salesforce have replaced traditional software, as well as spreadsheets and outdated hardware, like Rolodexes, with sophisticated cloud-based services that take much of the headache out of maintaining a sales database. But they, too, have taken it one step further to offer new value-adds: automation, customer service and “over-the-air” updates that deliver customers the latest and greatest versions at lightning speed.

Again and again, we’ve seen this pattern: cloud-based businesses come in and completely disrupt the slow, low-value incumbents.

As more businesses embrace B2B cloud solutions like Box and Salesforce, many organizations are starting to re-evaluate the products and services needed to run their businesses. It’s easy to see the benefits of Salesforce as compared to a cumbersome Excel document or the benefits of Box as compared to a hard drive folder. But beyond the convenience factor, these options provide immense, cost-effective, unprecedented value for businesses.

This is especially clear in the case of merchant hardware and services. Whereas merchants used to be forced to buy expensive hardware that quickly grew obsolete, today it’s possible to “rent” many items or pay only for the services that make them valuable. This is very similar to how consumers use cable boxes, for example.

In the past, merchants had to purchase an expensive point-of-sale (POS) system and install it. When it grew obsolete, they had no choice but to replace it. But the ship-it-fast, iterative approach inspired by the Lean Startup Movement has made this untenable. It has transformed small and large enterprises alike, forcing even the newest of stuff to become obsolete in record time.

Rather than just forcing businesses to buy more stuff (a non-starter), many smart enterprises have started giving away free hardware along with a bundle of high-value, fee-based services. Enterprises, like consumers, want the latest and greatest. And suppliers are starting to understand that their job is not just to offer a product or service, but to provide ongoing value.

Take the POS system, for example. For a long time, the POS was a clunky piece of hardware that retailers had no choice but to place on their countertops. It was how they accepted money from consumers, so they had no choice but to grit their teeth and pony up that (substantial) up-front investment.

When it grew obsolete, many were faced with the decision to continue operating with outdated systems, or upgrade to the newest versions, which often demanded significant upfront costs. Many, quite obviously, opted to continue operating with the old versions.

And while these old POS systems may still be getting the job done in a basic sense, they’re not helping merchants compete or take advantage of any technological changes. On top of that, when 2015’s EMV regulations go into effect, businesses that don’t accept the more secure chip-and-PIN credit cards will suddenly become liable for any fraudulent transactions that occur on their equipment. This will inevitably push many merchants to upgrade their POS systems.

In the payments industry, the real ongoing value to merchants comes with the software that runs on the POS system, rather than the physical piece of hardware. The ability to accept any type of payment, implement loyalty and rewards programs and maintain real-time inventory records... these are value-added services worth much more than the device itself.

Giving away a piece of hardware or sharing a server with millions of other companies may have seemed like a radical idea just five or ten years ago. But just as a new generation of consumers increasingly values experiences over stuff, a new generation of businesses would rather pay for valuable services than expendable commodities. Thus, more money can be made by offering value through services and software than by selling hardware. And there’s simply no ceiling to the amount of value you can add when it comes to software and services.

Smart merchant-focused B2B companies are catching on quickly. They’ve watched cloud-based enterprise business models take off in the marketplace, and they want to get their piece of the pie. Businesses that are still primarily oriented around selling hardware that is expensive and fleeting need to reconsider their position. They need to understand what customers actually want -- what services and benefits they depend on -- and how to provide that. The answer may very well lie in joining the B2B Value-Add Economy

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