Many businesses are monetizing software by moving to the subscription business model. 80% of all software vendors are estimated to be offering subscriptions by 2020. While companies scramble to make this transition, those that establish and follow a comprehensive plan are the ones most likely succeed on the journey. What should businesses know about how to ensure a viable subscription business? As principal product manager at Flexera, Scott Niemann, sees vendors dashing to the subscription business model. Drawing on his background in software monetization practices for IoT and SaaS markets, he shares guidance on how companies can prepare for the journey and provide business models that meet customers’ expectations.
- Q. What is the subscription monetization model?
A. Subscription is a monetization model used for SaaS, on-premises software, and for devices. Perhaps you offer subscriptions only or a mix of perpetual and subscription offerings. The pricing models you offer to your customers are likely complex, based on considerations like subscription term, whether or not maintenance is included, when payment is due, and when revenue is recognized. Examine each of these elements and make sure that your business practices and customer-facing communications accurately reflect and support the product(s) you’re selling.
- Q. What are the trends in software monetization?
A. Vendors are moving to the subscription business model in huge numbers. Gartner calls this migration a “stampede.” Traditional enterprise software providers and new software companies, alike, are offering subscription-based software, regardless of whether it is cloud-based or on-premises. By 2020, Gartner reports, subscriptions will be offered by a majority (80%) of “historical vendors” and by all new vendors.
- Q. What impact does the subscription model have on operations?
A. You can take the headache out of operations if you consider this from your subscribers’ point of view. Provide timely notifications, self-service options, and automations to help provide a smooth customer experience. Sending automated email notifications of licenses, electronic software delivery (ESD), and maintenance updates is a way to provide customers everything they need to get and use your software efficiently. Remember that the move to subscription is a journey; it’s crucial to establish a framework for success to support your efforts.
- Q. What are customers looking for when they move to subscription?
A. In a word: value. The value proposition isn’t something to demonstrate just during the sales process, but throughout the subscription cycle. Customers’ ongoing relationships with you require consistent delivery and demonstration of value. Keep in mind that you not only need good content in your releases, but also the operational capability to securely deliver the right updates to the right customers. With subscriptions, customers expect to be up to date in terms of new features and functionality, as well as security and bug fixes.
- Q. How does the subscription monetization model impact the customer experience?
A. Businesses must be aware that customers evaluate your product (and their desire to renew) at each and every stage of their use of your software. Renewal doesn’t happen at the precise time you’d like it to, though licensing, entitlement, grace period, and expiration dates are important benchmarks in a subscription cycle. A high-quality customer experience helps ensure engagement with your product. Look at how and when you communicate with your customers. What should you be communicating to them proactively (such as renewal and product notifications)? What self-service options might empower the customer, creating efficiencies in how they interact with you? What compliance policy is most fitting?
- Q. What do software businesses need to know about product usage?
A. Monitor accounts’ overall health, renewal health, and product consumption. How are customers using your software? When are their entitlements expiring? Evaluating this can help both you and your customers. For you, collecting and analyzing this data allows you to take appropriate actions—well before renewal time. For your customers, visibility into license consumption allows them to plan more effectively, eliminating renewal surprises.
As principal product manager at Flexera, Scott Niemann, sees vendors dashing to the subscription business model. Drawing on his background in software monetization practices for IoT and SaaS markets, he shares guidance on how companies can prepare for the journey and provide business models that meet customers’ expectations.
