A Word on Subscription Pricing

This blog is clearly going to jump around a little bit from a timeline perspective because … well … that is what I do.

As I have pointed out, I have three potential paths in front of me, but I think one of the common threads running through each is subscription-based pricing.  I guess the pricing part of this is not the most important part – that belongs to the ideal of “leasing” software, hardware and expertise as a service.

OK, software-as-aservice (SaaS) is hardly a new concept, even if it has been rebranded as “Cloud” due to the catchy handle.  For those of you who like to dabble in the stock market, the company valuation of these companies is impressive!  Check out the chart below – I admit ahead that it is not a great chart in the way I mix measures plus the revenues are based on the last fiscal year of each of the companies – which is not as good as forward 12 month revenue – but the chart does serve the purpose of showing how well SaaS companies are rewarded vs consulting, IT and traditional enterprise software companies.

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Why do these companies get these massive valuations?  Likely because the model makes so much sense for all stakeholders.  For the customer, the predictability of offering, avoiding a big upfront load of cash, better accounting of spend in general, less risk and lower TCO quickly jump to mind.  For the vendor, it also gives predictability of revenue, great cash flows, healthy backlogs and great protection of brand (e.g. instead of companies struggling to get the software working and “blaming” the vendor).  

Personally, I have believed, for the last 8 or so years, that individuals and companies would only buy software this way by 2020 – hope I am still correct in this one!

Why the importance of this topic to my “unemployment?”  Well … if I consult it will likely almost be on product management and subscription models (these will be inseparable soon in any case); if I start a company, whether in the consumer or b2b space, it will almost certainly be based on this model; and if I join another company, I will certainly seek one that goes to market in this model.

The next series of posts will focus on my experience and thoughts on subscription-based pricing – both inside and outside the software industry.  I also want to spend some time on exploring the real “secret sauce” of the model – adding best practices/expertise embedded in the subscription.

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