As noted in Subscribed by Tien Tzuo, CEO of Zuora, the economy is moving to a subscription model. Legacy B2B software solution providers are faced with significant challenges as they attempt to navigate from a Perpetual Sales & Delivery Model to a Subscription Sales & Delivery Model.
What I speak to audiences and ask “Who thinks we will buy software in a Perpetual Model in 25 years?”, no hands go up. Asking the question with a 10 year timeframe may yield a few hands. The future is clear and we are now discussing the timing.
Enterprise Software as a Service(SaaS) Subscription Business Models are growing rapidly. We see declining Perpetual Model (on-premise) software growth rates while Subscription Model (SaaS) CAGR is in the 16% to 20% range, depending on which survey you read.
In a Perpetual Model, the primary responsibility for success of a software solution that was sold to an enterprise customer largely fell on the customer with required commitments of extensive IT staff plus significant contracts with integrators (which often were many times the software license price). Also, because the solution provider either sold products that did not fit needs or lacked adequate support resources, the failure rate of these projects was often quite high.
With the emergence of Subscription Models (SaaS), that responsibility shifts significantly to the solution provider. This provides opportunities for happier customers and increased revenue over time for solution providers. This requires significant changes in the way solution providers do business. The impact is on culture, organizational responsibilities and structure.
As solution providers navigate the transition, they have to shift from customer acquisition to customer success as their primary focus. Churn is the devil that can drive a Subscription Model company out of business. This requires significant cultural and organizational changes and is often disruptive to revenue and employees of legacy solution providers.
For additional insight on these challenges, go to Culture Clash-Making the Transition from On-Premise to SaaS Solution Provider or contact Growth Process Group.