Is the subscription economy over, and what should software vendors and businesses do to stay relevant?

Not long ago, organizations were willing to pay a hefty perpetual software license with an annual maintenance fee for a needed solution. Some software vendors still offer these perpetual licenses, and it is beyond me how they survive, as most software organizations have offered subscription-based license models for years.

The subscription-based economy has unfortunately led to subscriber fatigue both in our businesses and our personal life. Just think about the personal subscriptions that you have and have to maintain. How many times do you ask yourself whether you really need the subscription? I have taken the approach of keeping a list of subscriptions and evaluating whether we need them. Just think about an Amazon Prime subscription. You get entertainment with your basic subscription, but you typically have multiple additional subscriptions as your favorite show happens to be in one of those extra channels like Paramount +, BritBox , etc.

The same applies to software subscriptions. I run a boutique software management consultancy, TELLUS International , and my wife Rita Salonen has a cruise travel agency, TELLUS Travels . Both of these organizations need subscription-based solutions. You can easily sign up for 20-30 different subscriptions, and you can end up spending a pretty sizable sum of money on them.

I have been a keen follower of Zuora for years, using them as an example of a solution that helps organizations with subscription-based billing. In a recent article, Tien Tzuo , founder and CEO of Zuora, asks whether the Subscription Economy is over as consumers are overwhelmed by the multitude of subscriptions they are expected to maintain.

Being the CEO of a subscription-based solution business, Tien Tzuo obviously does not think the Subscription Economy is over but that we are moving to a new era. Tien Tzuo says, "to stay in power in the increasingly competitive, dynamic, evolving landscape, modern businesses need a different approach." The response is to have a monetization model that is not static and aligns with the perceived value that the customer is getting from the solution or product they are paying for. The article provides innovative pricing examples that reflect the new world, such as Zoom , Hubspot , and The New York Times .

I have written several articles about how the AI era will change pricing and the importance of software vendors (ISVs) changing their thinking about pricing. I wrote about how software vendors face new realities in software pricing when using GenAI, why a consumption-based monetization model could benefit AI SaaS software vendors, and why traditional SaaS software pricing and packaging models will not work with GenAI solutions.

In my research on pricing and monetization models, I have found that the per-user pricing model may not be the way to charge in the future. As I wrote in an article summarizing some impacts, the software industry is moving towards agent-based solutions unsuitable for user-based pricing.

Change in business models is an ongoing activity among CEOs, as witnessed in the latest PwC CEO Survey . The survey boldly states: "In the current business environment, US companies need to transform—repeatedly and holistically—or risk falling behind."

According to our PwC Pulse Survey, 82% of US CEOs say the average company in the US will not survive the coming decade if they fail to change. In today's rapidly evolving market, it's crucial for businesses to adapt and innovate. The reporting from PwC is focused on five different topics:

??XaaS (Anything-as-a-Service)

??Digital Products

??Physical/Connected Products

??Ecosystem/Platform Play

??Channel Innovation

The emphasis from Tien Tzuo is to focus on what kind of differentiated value your offering brings to the customer. It starts by building strong relationships with the customer and ensuring that you create value for the customer. The value is created by creating a dynamic mix of prices, packages, and models informed by market data (analytics). Mr. Tzuo states the following:

Businesses can no longer rely on subscriptions, consumption billing, one-time transactions, and other singular pricing models to have staying power. They need to accommodate a mix of data-driven strategies. This approach necessitates a platform that uses market and customer data to experiment with different pricing models and optimize the structure based on emerging patterns.

The platform that a software vendor or an organization offering a subscription-based service needs to be flexible with smooth transactions. The platforms or tools should handle everything flawlessly, no matter the pricing model: subscriptions, one-time purchases, usage, consumption, etc.

In the numerous business design workshops I have facilitated for software vendors and organizations building intellectual property (IP), the "billing platform" and its inflexibility are a big constraint for the vendor. The development team can innovate solutions that allow different solution variations. Still, if the backend subscription/billing engine does not support it, maintaining the subscriptions with customers becomes a nightmare.

Organizations must constantly evaluate and evolve their mix of offerings to stay relevant and agile. Customer demand changes with time, whereby businesses need to realign their offerings with customers.

Mr. Tzuo from Zuora calls the new trend of monetization "Total Monetization." Total Monetization is a strategy that is both customer-centric and future-proof. Total Monetization can take shape in numerous ways, including bundling and unbundling subscriptions, offering consumption-based pricing alongside subscription models, one-off top-ups, freemium products, and per-use credit systems.

Every organization needs to ask the following questions:

??Do we understand how the monetization of our offerings or services might change going forward?

??Will we be a relevant player in our domain going forward?

??What are other players and competitors doing in this space?

??Have we already lost market share to somebody with a more innovative monetization model?

I would love to hear your thoughts on this topic. Are you in the subscription business and seeing consumer and business behavior changes considering subscriptions?

Yours,

Dr. Petri I. Salonen

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