Software in the Hardware Industry

Question: "Over the last weeks I have met several product managers with a traditional hardware product line, mainly from veteran companies in the industrial arena. They have now started selling software to increase the value of their offering. But very few have been able to generate profit from the software sales, even though it really adds customer value. The customer wants the software for free and the internal sales organization has little experience in software sales. Still the executive management has given its support. What approach should a product manager have on this issue?"

Answer: This situation embodies several key questions and challenges. First and foremost, the most dominant question is if there is a market problem and the resulting market opportunity for hardware companies to provide this particular software to this target market. If the aforementioned market problem and market opportunity actually exist then it is now required to (1) begin marketing activities that will convey the value of the software to the target market and (2) equipping the sales force with the necessary sales tools and skills to be able to sell.

All the roles in the product management team model could be related and become involved in this situation. The product marketer and the product planer would cooperate in writing the business case document (an examination of a potential market opportunity on a product level). If the business case would produce a Go decision, meaning that there is a market opportunity for the hardware company to engage in software sales, then the product marketer would proceed in creating the market plan (a description of the long-term goals, and messages delivered to the target market, relative to a particular product) that will relay the value of the software to the target market. Consequently, the sales engineer and the marcom manager would cooperate in creating the company and product presentations, as well as a variety of other sales tools that are based and primarily express the software's value messages as noted in the market plan.

At the immediate tactical level there are several concerns. The hardware company is likely to heavily rely on the sales force to gain sales momentum so there are probably no concerted marketing or advertising activities taking place in the background. The sales people are probably lacking sales tools and need to be trained in selling software, which means that their current chances of reaching software sales quotas are impeded. In addition, unless customers desperately need the product they are not going to want to pay for it. All this means that there is a vicious circle of low revenue from software sales which will translate to no incentive by the hardware company to deviate from its core competency and invest more in software sales or software development (particularly if the customer will always want the software for free). From the outset it may have been a mistake for the hardware company to start selling software. Finally, it is unclear what type of support the executive management is actually providing.

In summary, the difficulties experienced by the hardware companies could be related to an overly optimistic estimation of the size, financial potential, and time duration of the market opportunity, as well as missing or misdirected marketing activities. At the very minimum, a business case and (conditionally) a market plan should be prepared in order to gain a reasonable perspective of the business landscape and how it should be handled.

For more information, please see the Blackblot Product Management Team Model, Blackblot's Product Manager's Toolkit®, and the "Product Management Team" and "Value-Marketing Model" chapters in the "Product Manager's Toolkit" book.


Blackblot Product Management Team Model