Amid SaaS thirst, vendors grapple with how to monetize software

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Dive Brief:

  • Subscriptions constitute a key monetization strategy for 74% of software vendors, but other models — like usage-based billing or perpetual licensing — are still part of the mix, according to a survey of 321 software vendors from software company Flexera.
  • Almost half of decision makers expect their company to expand subscription-based monetization offerings in the next 18 months, compared to just 29% who foresee growth coming from the perpetual license model.
  • To meet customer demands, one-third of companies using SaaS as their primary deployment model must still offer and manage perpetual use licenses alongside regular subscription-based offerings, according to the report.

Dive Insight:

The industry uptick in as a service offerings — whether it’s software, infrastructure or platform — lowers barriers of entry for tech adoption.

But across the aisle, on the vendor side, the convenience of having predictable revenue comes at a cost: The complexity of handling multiple offerings in addition to subscription, said Nicole Segerer, director of global enablement at Flexera.

“Software suppliers need to meet their customers’ needs, which often means multiple deployments and monetization strategies,” Segerer said, in an interview with CIO Dive. “While it creates flexibility for the customers, suppliers must manage a lot of complexity in their back-end.”

To manage that complexity, vendors have to step away from running their products in silos, Segerer said, and instead take a holistic approach that lets them centrally manage their products.

Getting a large customer base to move across different monetization schemes represents one way vendors grapple with complexity, according to Bill Ryan, VP and analyst at Gartner, who focuses on sourcing, procurement and vendor management.

“Vendors find themselves trying to find out what mix of ‘carrot’ and ‘stick’ it takes to make that happen,” said Ryan, in an interview with CIO Dive.

A “carrot,” or incentive to migrate, could be a discount to help cover implementation costs. In turn, end-of-support deadlines or a freeze on feature updates can be the “stick” that adds urgency to a migration.

The exploding diversity of use cases across the software industry, boosted by the rise in automation, adds to the complexity on the vendor’s side. – Read more

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