The move to selling software as a subscription is already well underway. Gartner predicts that by 2020, 80% of software vendors will move their business model to subscription, and actions by the major vendors point in that direction also. Consider this: Amazon offers a whole online store for software by subscription, featuring some of the most popular consumer packages around, including Adobe Illustrator, and Norton Security. Microsoft sells multiple versions of Office 365 in subscription format, including a super inexpensive, individual rate of only $6.99/month.
The move to a subscription model has implications for both vendor and client infrastructure, and it’s worth up a second to understand them.
The benefits of moving to a subscription model are well known, but in themselves imply changes in the ways companies operate. These include:
*Simpler monetization. You’ve invested months of development in a new release. Recouping that investment happens more simply and predictably when you simply flow the software into the subscription model. Subscription models also reduce the risk of customers balking at a price increase since the new price is distributed over many payments.
*Easier try and buy sales. Customers can take out a 1 month subscription and try the full suite of software – but only for a limited time – before committing. No need to create“lite versions” or complicated return policies for the full copy.
*Less churn. Every new release is an opportunity to lose a customer simply due to lack of timely purchase of an upgrade, followed by a whole new sales cycle. With a subscription, the software simply flows until the customer actively turns off.
*For customers – everyone on the same platform. Your customers always have the latest software, (including the latest security features, for those that care about such things) AND they don’t have to worry about any incompatibility across releases within their own organization.
*For customers – lower entrance costs. One of the prime drivers behind the software subscription model is the assumption that customers prefer lower start-up costs and predictable monthly costs to larger, one-time expenses, and therefore will sign up more readily.
|Microsoft Office 365||Adobe Illustrator CC|
|Monthly Subscription Rate||$6.99||$19.99||$19.99||$3.95||$195|
*Source: Microsoft website
So how does achieving these benefits impact operations? For the software vendor, there are several key considerations.
Move to continuous product flow. The move to a subscription model takes digital distribution of discrete releases a step further, and requires thinking about how to achieve continuous product flow. Customers will expect their software to be always up to date, carrying the latest features. This requires a highly available distribution system. If your software is for sale internationally, then you need a system that can deliver new customer software flawlessly to target regions.
24/7/365 Operations. Since part of value proposition of subscription software is the ease of signing on, and the promise of continuous updates, your delivery system needs to be monitored for even slight delays, as this can impact revenue. Being able to troubleshoot problems, quickly restore service if there is an interruption, and support your customers’ business schedule are necessary for shifting to a model of continuous flow.
Seamless scalability. Subscription customers rely on the promise of additive functionality – every new release builds on what they already have. In reality, this translates to releases and interim updates that grow in size over time, as they accommodate all previous releases. Software and applications frequently exceed 100MB’s. Your network needs to accommodate thousands of endpoints looking for updates virtually simultaneously.
Secure delivery. If your product is continuously flowing, you must ensure no one is “syphoning off” valuable revenue. Choosing a secure network, with multiple layers of protection, is one of the many steps to protect your company from delivering software to unauthorized endpoints.
If you are a potential subscriber to software, here are some infrastructure considerations for your organization:
Online or Offline: Some software vendors allow use of their software when the customer is “offline.” Doing this means providing an initial download to the customer’s computer of the full software package. To keep the subscription up to date, either the customer or the provider regularly pings the customer’s system to ask what version they’re using and automatically updates the version in use. Alternatively, some subscription packages require your users always be online. These are called ‘streaming subscriptions.’ If you really need the software, it may not matter to you how the software deploys, but it’s important that end users know about the software’s requirements.
Centralized or individual renewal and billing. When an employee moves to another department and no longer needs a particular piece of software, how does the subscription get terminated? Understandably companies do not want to pay for software not in use. On the other hand, some companies may allow their employees to choose their own software tools. Subscription services need to be able to work through a company software distribution hub, or offer transparency around their operations to client billing and IT departments.
File storage, ownership, and security: Using subscription software to create documents and files raises the question of what happens to these files after the subscription has ended. Will customers still be able to open and use them? Do they need to pay additional costs to open them and move them from the cloud to a company repository? Some require exporting all your files from the cloud before cancelling the subscription. It may make sense to establish an onsite storage repository for these files and alert users that they are expected to protect company IP by using this repository.
In summary, the move to subscription software offers many cost and convenience advantages. However, to fully realize these benefits, the vendor’s delivery infrastructure must be thoroughly reliable, and the client’s infrastructure should have tools for effective monitoring.