Are You Ready for the Subscription Economy?

Turn your customers into subscribers. That’s the mantra of Zuora Inc., a leading provider of a cloud-based subscription management platform. They have coined the term “Subscription Economy^®” which embodies the idea that customers are happier subscribing to the outcomes they want and when they want them, rather than purchasing a product with the long-term burden of ownership. They will tell you that consumer preferences have changed. They are looking for new ways to engage with businesses that come with a new set of expectations: outcomes vs. ownership, customization vs. generalization, and constant improvement vs. planned obsolescence.

To make their point, Zuora stresses the popularity of new usage-based models that keep customers consistently engaged in long-term relationships, like Netflix, Amazon Prime, Uber, Salesforce and countless others. Who can argue? In this new era, subscription experiences are built around services that meet consumers’ needs better than the static, out-of-the-box offering of a single product as perpetuated in the “old” days.

Subscription preferences apply to enterprise software licensing as well as consumer goods and services. Back in 2016, we posted a blog about Gartner’s prediction that “by 2020, more than 80 percent of software vendors will change their business model from traditional license and maintenance to subscription.” That prediction was certainly on target and perhaps going mainstream sooner than expected.

In 2017, Gartner interviewed ISVs who had already made the transition to subscription licensing and reported they experienced stronger customer relationships, reduced cycle time for customer-requested enhancements and modular products with add-on capabilities, along with the advantage of being part of a community and enabling ongoing customer engagement. Gartner further noted that the subscription model also created a direct relationship with every customer, while allowing partners to leverage their relationships for additional services during migration and after deployment. Over time, these progressive relationships resulted in the ability for vendors to sell more capabilities to more customers.

In the report, Gartner cited the 5 most valuable lessons learned by ISVs who successfully transitioned to subscription-based business models. Here are their recommendations:

• Ease into a subscription model
• Break down entry barriers with subscription
• Improve value and create recurring revenue streams through subscription
• Use value articulation and pricing as levers to influence transition speed
• Ensure partner and reseller revenue streams remain intact

Wibu-Systems has helped many of our customers successfully transition to subscription-based licensing, and as a result, they are realizing better monitoring and tighter control over software usage, more predictable and recurring revenue, and a greater deterrent to software piracy. For their end users, subscription licensing offers a lower upfront cost, pay-for-use only pricing, and ongoing access to the latest and greatest features and functionality. During these transitions, we stress the importance of three factors for success:

• Ease of use for the subscription workflow and the user’s interface
• Ease of use for automatic renewal
• A pricing point that is proportionate to the perpetual license, most important for those ISVs who create both license models

If you are considering a transition to a subscription software model, or perhaps providing it as an option to your conventional perpetual license, I invite you to view our webinar where we present the basic foundations of subscription models and demonstrate how to configure and implement your own subscription model using CodeMeter License Central, our ultra-flexible license creation, management and distribution system. You can access the on-demand replay for “A Cash Machine for Your Software” here.

* Subscription Economy is a registered trademark of Zuora Inc.