Funding the Convergence of Technology6 Feb, 2013 By: Vincent Faino imageSource
The convergence of diverse hardware and software technologies has resulted in the creation of complex, integrated solutions that not only benefit the customer, but yield much higher margins for the solution providers as well. Enhanced profitability comes at a price, however. These offerings require extensive professional expertise in order to structure, deploy, service and support them.
Arguably, the most important aspects of complex technology solutions however, are the unique and innovative financing programs that tie all of the diverse elements together. Hardware, software, and technology equipment vendors, along with solution providers in just about any industry need a strong financing partner to manage the complexities of convergent technology solutions, working as the financial hub that enables the entire process. A successful financing partner must have a deep and rich understanding of both the solution and the needs of the customer deploying it in order to fill this role.
The Convergence of Technology
The textbook definition of the convergence of technology is the tendency of different and disparate technologies to evolve toward performing unified tasks. What this means in a practical sense is easier to understand—it all boils down to the network. Virtually everything that’s done in a modern office—copying, printing, email, instant messaging, voice conversations, data transmission, information storage, and building security to name just a few—all rely on the network. It stands to reason that the solution provider that owns the network also owns the customer.
The network is what enables the creation of the many different “Technology as a Service” offerings. Technology as a Service (TaaS) refers to any strategy that creates a partnership between an organization and a provider who delivers an all-inclusive solution for a per-seat or usage-based fee. Software as a Service (SaaS), Hardware as a Service (HaaS), Infrastructure as a Service (IaaS), and Security as a Service (SECaaS) are all examples of solutions that combine multiple technologies into a single, bundled solution that can be billed on a recurring basis. Distributed computing models of this nature are at the heart of cloud computing, and paying for Technology as a Service expense will become increasingly commonplace over the next decade.
Comprehensive Integrated Solutions
For solution providers, it is no longer cost effective to deliver standalone installations of hardware, software or equipment, regardless of the purpose or industry served. Fully integrated solutions are completely redefining how companies acquire equipment and technology because they deliver value to the end-user customer in many diverse ways. When aggregating different technologies and diverse services into a bundled solution, a major challenge is that designing and delivering it becomes an extremely complicated and time-intensive process. In order to compete effectively in the marketplace, solution providers must be able to package and implement these offerings cost-effectively, efficiently, and precisely configured to each customer’s unique business requirements.
The critical piece of the process is that solution development also requires significant upfront investment in equipment and software by the customer or the solution provider. The need for capital is compounded because the project specifications will invariably change over the development and deployment lifecycle. To address this financing needs to be in place before the solution development even begins; not when it’s ready for deployment. This is why the financing partner is an integral part of the solution development team, serving as the hub by bringing all of the working parts together. A solid financing partner not only handles the upfront financing, eliminating the need for large initial outlays of cash, but also adds significant value in terms of overall transactional expertise while helping the project team to stay on track.
Creative Financing is the Key
Financing a transaction of this nature requires a tremendous amount of creativity by the financing company. Beyond the complexities of the transaction, the diverse technologies and providers that come together require a comprehensive financial system that ties together the individual components and payment distribution requirements of the solution without adding to the complexity.
The billing model is also different, because it is typically based on the usage of services instead of being limited to only equipment payments. The financing partner must be able to measure usage accurately, submit a single bill based on it, and then disburse the payments according to the structure of the transaction. From the customer’s perspective, regardless of the complexity of the solution, the simplicity of one monthly payment to a single point of contact is a critical part of the solution. This single payment simplicity is essential, even though the various products and services will invariably require funding on a variety of timelines. Ultimately, inventive and creative finance solutions become the glue that holds the transaction together as it is developed and deployed.
Because the finance company handles tax administration, invoicing, collections, cash application and remarketing, administrative costs are reduced dramatically along with a corresponding rise in profitability. Financing these complex solutions is not a follow up activity that happens after the transaction has been agreed to. It is actually a functional component of the transaction structure, serving to tie all of the diverse elements together.
Going to Market with a Virtual Team
In order to successfully capture market opportunities today, solution providers must make it a priority to find and work with a financing company that understands the big picture, has adapted to the new reality of the technology and business landscape, and that can provide the multi-dimensional support that complex technology solutions require.
The financing partner needs to sit at the table with the solution providers from day one, guiding, directing, and adding value at each step along the way. The front-end technical aspects of application are managed and directed by the solution providers themselves. The back end financial and business aspects of the transaction become the province of the financing partner, who also coordinates activities and keeps the entire development process on track. There is no such thing as a “cookie cutter” approach to developing and deploying a complex technology solution. The needs of every customer and every business are different, requiring a unique blend of hardware, software, equipment, and both the technical and business skills to bring everything together.