Neely Shachal, Marketing Executive, Synthesis Systems

Moving from Perpetual Licensing to Subscription Economy? Consider These…

The transition from perpetual license to subscription economy is fast becoming a natural course set by many successful examples in the market. Still, many businesses are not quite prepared for the pivotal shift to the subscription model. Subscription is the future and if you don’t plan your transition appropriately, you may succumb to your own mistakes and insufficient growth. Furthermore, the move from perpetual licensing to a subscription-based model is a daunting one, so companies may face significant turbulence during their journey if they do not take a meticulously planned approach.

The following are a few things to consider before transitioning from the licensing model to a subscription-based model: 

The Mindset

Truth be told, transitioning from product licensing to subscription is less about technology, business model and revenue models, and more about your ability to adopt the subscriptions mindset. Companies who failed to transform have imagined the movement to be a simple switch off/on approach. Yet, some factors that the subscription economy also changes are your customer expectations, product deliveries, business models, revenue models, organizational structures, operations, and infrastructure. Well, that is pretty much the entire company, isn’t it? It takes the right mindset to be successful, and many large companies including Microsoft, Adobe, and Netflix have taken the transformation opportunity to hit refresh on their business.

The Product

Just saying that “we are transforming because everyone seems to be doing so” is not the answer. You need to set a clear vision keeping in mind customer and stakeholder expectations. Transitioning to a subscription model isn’t as simple as putting your offering in the cloud and then charging a recurring fee. Managing a successful transition involves many challenges, and unfortunately, there is no ‘one solution fits all’ approach. You should be offering products that justify the price to value ratio, and more importantly, customers should be eager to come back for more of your product once they’ve had a taste.

Be Prepared for Potential Risks

If you successfully transition to a subscription model, the payoffs are huge in the long-term, but a short-term dip in revenue is likely at the beginning. It may be difficult for shareholders, but it is essential that they understand the process and have tailored expectations. They should know the reasons as well as the importance of the transition and how it ultimately affects the consumer.

Take it Slow

You don’t need to move all customers and products to the subscription model at once. A good approach is to continue selling products through your licensing model and ease into the change with a subscription-first strategy. One can learn from Adobe’s and Microsoft’s lead to transition product by product. To keep acquisition costs lower, move new products and customer contracts first and then convert existing customers. Then also be sure to provide flexible licensing options to attract and retain new customers.

Get Partners and Investors Onboard

The difference between the reality of making a transition and the expectation of what it’ll be like can be one of the biggest problems encountered during the transition. Be prepared to articulate and demonstrate the advantages of transitioning to a subscription model to your sales team, customers and partners; make sure everyone is on the same page from top to bottom.

The Right Pricing

Setting the right price is a challenge. If you price your product or service too high, there won’t be early takers. Yet, if you price too low, you won’t be able to recover the costs and it will take longer to make profits on the new model. Moreover, if you don’t give enough options for pricing, people will not be so keen on adopting the new model, but then too many options can lead to confusion. This is where your understanding of the customer expectations come in handy: to offer the right price, such that customers won’t mind spending that amount month after month.

Subscription models are the future, and their popularity has been growing over the past decade. An increasing number of traditional software companies are transitioning to cloud-based and subscription models – and obviously for good reason. However, not all are successful, with a key reason being a lack of proper planning.

Talk to our experts who can help you make the right decisions and collaborate on a step-by-step action plan to be successful.