Moving to Subscription-Based Licensing Models

The growth of SaaS-like business practices has driven increased interest in subscription-based licensing models. But the move from an up-front to a recurring-revenue model can negatively impact your business if not implemented properly.

Amy Konary, former IDC program vice president for Software Business Models and Monetization, noted that, “most software companies want to be able to offer customers flexibility and choice in software deployment and pricing, while others are shifting entirely to cloud/subscription approaches. There will still be applications on-premises, licensed in the traditional sense. But growth is in subscription and cloud offerings. This means that most of the largest software companies will be managing a hybrid scenario, from both a technology and a business model perspective — a tall order.” (Market Forecast – Worldwide Software License, Maintenance, and Subscription Forecast, 2017–2021)

Regardless of how large your company is, an important element of successfully implementing subscription-based licensing is understanding how customers use your software and its features. You need insight into:

  • How often specific features are used, or not, and which are used together
  • Which business functions use your software and how their usage differs
  • How many customers are using your software, and if they have cyclical usage patterns

Software usage analytics gives you the insight to answer questions like these and make informed packaging and pricing decisions. For example, an accounting software vendor assumed that that certain reporting features were used monthly while general ledger features were used on a daily basis, and detailed usage data confirmed these assumptions.

By analyzing this data the vendor was able to quantify the number of customers and when they were using the different feature sets. The vendor structured its subscription model to be calendar based, offering monthly subscriptions and annual plans that best met customers’ business needs while maximizing revenue opportunity by reducing the likelihood that customers would only sign up when they needed to complete a task.

Successfully adding subscription-based licensing models requires significant business transformation. Moving forward without a data-driven understanding of your customers’ product usage, patterns, and needs puts this success at risk.

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