SaaS Boom Puts Software Sellers on Road to Recurring Revenue

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The revenue models of the software business are shifting. Producers and end consumers will benefit from complex and hybrid monetization models, which will predominate in the market to provide more flexibility.

According to the Monetization Monitor: Software Monetization Models and Strategies 2021 research from technology company Revera, this is the case. This study, part of an annual series, offers standards for product executives at software and device firms on software deployment, pricing, and monetization.

Survey results revealed that SaaS and subscription models are becoming more critical for the software sector, with over 400 responses from top-level corporate leaders from software and device companies. According to the Revenera survey, today’s two most popular software monetization methods are subscriptions and perpetual license agreements.

Even more critical, installing a recurring income subscription model has been identified as the most major driver of change over the previous two years. The study outlines the actions that businesses must follow throughout this period of transformation.

Software organizations seek strategies to transition from on-premises software to SaaS products with recurring income. Nicole Segerer, vice president of products and marketing at Revenera, explains that although the transformation is accelerating, they must also deliver on the demands of their end customers, who may not be able to keep up with the transition at the same speed as they are.

Technology businesses are now offering a diverse range of monetization and distribution methods due to this evolution. Her words: “Suppliers that want to stay ahead of the expanding complexity invest in better understanding product use so that they can make better roadmap choices.”

Report Highlights

  • Revenera did the worldwide survey from the middle of April to the center of June in 2021. This study project examines the business structures, price, use, and transparency of software manufacturers, as well as the software they develop. The 374 survey respondents represented a variety of job levels, including director and above (33 percent), manager/team leader (33 percent), and individual contributors/consultants (33 percent) (34 percent).
  • The following are some of the most significant results from the study:
  • The majority of businesses use a variety of deployment strategies. According to the survey, 34 percent of respondents each use the software as a service or on-premises software significantly (for more than 51 percent of a company’s operations), and 34 percent use on-premises software extensively. Embedded software is still widely utilized by 20 percent of the population.
  • SaaS is the fastest-growing segment, with 59 percent of respondents anticipating higher usage over the next 12 to 18 months in this category. Product managers want to place an even more significant dependence on SaaS in the future (72 percent).
  • Only 30% of those who answered the survey said that price and value are “completely matched.” When monetization approaches are more closely related to metrics of use and engagement, the level of confidence in the alignment between price and value increases dramatically. Sixty-one percent of organizations who can obtain use data “very effectively” believe their worth is in line with value.
  • Implementing a recurring revenue model was the most often cited reason for changing software monetization strategies during the previous two years (reported by 62 percent). A majority of organizations (62 percent) said they are changing their monetization models to penetrate new vertical markets. Product managers are the most aggressive in their pursuit of new vertical markets, with 72 percent stating that they intend to do so.
  • Provision of temporary evaluation/try-before-you-buy (indicated by 41 percent of respondents), the addition or improvement of automated enforcement (39 percent), and the addition of new price meters are the top three reasons for modifying licensing regulations (34 percent).
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Neither Good Nor Bad Options

According to Segerer, complex and hybrid monetization methods are neither excellent nor terrible “improvements” to the present financing mechanisms since they are neither good nor bad “improvements.” They are just a fact of life. According to the report’s findings, a one-size-fits-all strategy to monetization or deployment techniques does not keep up with the changing demands of customers.

“Most software manufacturers now provide a variety of products, some of which are SaaS solutions, some of which are cloud-based, some of which are deployed on-premises at their customers’ locations, and others which operate on mobile devices. Segerer said to TechNewsWorld that “it is not practicable nor viable to deploy or monetize all of those products in the same manner.”

Today, the conventional method of selling software is to generate recurring income via subscriptions. It encourages a more significant customer focus on the value of the customer. She noted that it matches spending with the value gained by shifting purchasing spending from the capital to operating expenditures.

The preference of software firm owners and investors has increased in the value of software enterprises. Sixty-two percent of software developers have modified their monetization approaches in the previous two years to adopt a subscription-based revenue model,” she said.

Mixed Money Bag

Even as 85 percent of software suppliers plan to continue or increase their reliance on subscriptions in the next 12 to 18 months, 65 percent of suppliers also plan to continue or expand their use of perpetual license models.

That highlights that most software suppliers cannot make a wholesale change in their monetization strategies but expect growth overall, Segerer said about the significance of the report’s findings.

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“Today’s software suppliers must support customer needs by optimizing a mix of monetization and deployment models,” she added.

However, software companies need to manage the different options streamlined on the backend. That prevents it from becoming an operational headache.

“That is where central entitlement and licensing solutions can help keep the monetization backend streamlined while offering flexibility to customers,” said Segerer.

Fluid Environment

Even though 85 percent of software suppliers want to maintain or expand their dependence on subscriptions in the next 12 to 18 months, 65 percent of software suppliers intend to keep or increase their reliance on perpetual licensing models in the same period.

According to Segerer, the survey results demonstrate that most software vendors are unable to make significant changes to their monetization strategy, although they do anticipate growth in the long run.

“Today’s software vendors must meet the demands of their customers by optimizing a combination of monetization and deployment approaches,” she said.

On the other hand, software businesses must handle the many choices efficiently on the backend of their applications. As a result, it does not become a source of the operational difficulty.

“Central entitlement and licensing solutions may assist in keeping the monetization backend efficient while also providing flexibility to clients,” Segerer said. “

Good for Consumers and OEMs

As more software vendors pursue cloud-native and microservices projects, it is vital to guarantee that containerized software is only supplied to clients who have purchased the software license. Suppliers need to bridge the gap between continuous delivery and entitlement management systems to speed prompt and accurate revenue recognition and eliminate revenue leakage.

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‘Suppliers that can decrease friction by integrating their quoting, order management, entitlement management, and electronic software delivery systems will be in a better position to generate value for their customers,’ Segerer said.

The poll found that, apart from significant growth in subscription models, 59 percent of respondents expect to see a rise in their usage of SaaS over the next year, according to Segerer. On the other hand, on-premises software is expected to drop by just 29 percent of respondents.

Moreover, she said, “suppliers must be prepared to handle several deployment models at the same time, rather than anticipating the trend toward a single strategy for software delivery.”

New Thought Processes

A subscription company is distinguished by the fact that every function is, in some manner, a revenue function as opposed to a cost center. According to Krish Subramanian, co-founder, and CEO of Chargebee, this is a fundamental mentality change required to match corporate incentives, organizational structures, and budgets.

The cost center, generally considered support, is traditionally conceived of as a proportion of revenue. However, this is no longer the case. The success of your subscription company is contingent on your ability to provide excellent customer support to your customers. “This change in perspective, from thinking about product/service ROI to thinking about customer ROI, is required to complete the transition,” he said.

With the promise of revenue predictability and recurring income, it comes as no surprise that many businesses are considering whether they should embrace a subscription business model in the wake of the Ebola virus outbreak in Africa.

Business executives who are presently debating whether or not to make the transition should consider whether or not a subscription model is a good match for their organization. He also stated that they should determine whether or not they have a product or service that is regularly desired by a large and increasing market before proceeding.

People thinking about switching to a subscription model should also do two crucial things: create a strategic plan for making such a significant change and design for agility across siloed operations and divisions.

It takes much more than simply providing recurring income to run a successful subscription management business.” Changing your product strategy, customer interaction plan, and marketing strategy are all essential steps in the process. “Because consumer responses are provided in real-time, a company will need extensive cross-functional coordination,” he advised.

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