The Good, the Bad and the Ugly of Subscription Conversions Pt. 2

This is Part 2 in a Series

Read Part 1

Read Part 3

Step 2: Pushing Subscription Conversion

Now comes a time (which might be immediately after creating the subscription offering) where we will begin to push the conversion to subscription offering to our customers on maintenance. Here is where we mostly approach existing customers who find themselves in need of additional capacity or another module. For these customers we offer them a conversion on the rest of what they own. Since at this point, they can still buy perpetual we will need to persuade them to do the conversion. This could be challenging since there is not a lot in it for the customer or the channel partner.

In the case that the customer may only want to increase their usage of products of one type with no need to change anything else and no need to learn anything new about our licensing practices. We will tell these customers several things.

• You will benefit if we can go through all your disparate past orders and put them on the same renewal date, so they are terminating on the same date or ‘co-terming’.
• You will have the flexibility to add or remove products. (This will only be possible at the end of your term and after we negotiate with you.)
• [Sometimes] You’ll get access to some new features because of how we simplified the product definitions to include more features.

However, there are also potentially some big hassles for the customer. Sometimes we’ll find that certain entitlements with the customer are not present in the new pricing, forcing the customer to change the definition of their entitlements. The scope of this discussion could expand uncomfortably for the customer beyond just the increased usage of one type of product. Let’s assume that we can make a nice quote and value-justify this exercise so we can move to the next part of this step.

Essentially this conversion is going to take some form of committing a customer to some period for entitlements where the previous perpetual license is forfeited. The customer will no longer be able to leave maintenance without ceasing to use the software. (In some places the compliance policy of the customer prevents ceasing maintenance. In others when maintenance is less used it is cancelled.) If the reimplementation timeframe is long, then this could be an especially powerful force that limits the customer from forgoing the renewal as they will need to stay until they can migrate and not just dump the maintenance any longer when they decide to move to another product and thus go without support and updates.

Also, if the customer had just bought the perpetual license and they are still depreciating the asset they might be reluctant to forfeit that asset and trigger some accelerated depreciation which might be their internal policy. In fact, I’ve heard from my partners some vendors put in their offer a ‘trade-in’ value of sorts for the forfeited assets. Other vendors just dismiss it and treat all forfeitures the same, giving no trade-in value.

SIDEBAR: When I call up my mobile service provider Verizon to talk about doing a phone trade in with my mobile plan, which is also a subscription, I am on the other side of this situation. (Firstly, I am asked about 5-6 times during a single call if I want to buy a new line because there must be incentive for the rep, to which I politely decline the first 3 times.) However, finally when I am offered the trade-in on the phone, which even applies to broken phones, it sounds like such a great ‘trade-in credit’. I still wonder that that they must be making it all up on the 3-year lock in for the expensive monthly charges. There might be something to learn from the mobile phone companies in this regard about the psychology of ‘trade-in’ credit, and even how they only allow the credit to apply ratably as they do over a 36-month period.

Now that we have gone through the assets, the co-terming, the remapping of products and explained the forfeiture of the assets we are ready to execute a nice transaction. Probably up until now it would seem like we are always directly talking to the customer about all of these complex matters, and this could be true in some cases. However, there are all many cases especially outside of North America where all of this would often be run through a local channel partner who deals in the local language or a channel partner that deals with government contracts. The time spent so far is a big drag on the channel partner. In some cases there is a great hassle to absorb because of this conversion motion. The channel partner becomes the messenger of bad news with little-to-no commercial benefit directly to the channel partner.

Continue to Part 3

Disclaimer: The opinions expressed are solely mine. They do not necessarily reflect the view of any of my employers nor relating to their business or policies.