NetSuite for Subscription Billing

IDC offers the following essential guidance to independent software vendors that are thinking about offering subscription licensing models as well as those that are looking to refine their existing subscription approach:

• Offer customers a portfolio of options because customer perceptions of subscription licensing models vary widely. This does not mean that vendors need to create several versions of their software: It should be the same software, just licensed in different ways for customers.
• Include support and upgrades in the subscription cost. Software customers believe that one of the key problems with perpetual models is that the customer is often faced with high upgrade costs in addition to the cost of software maintenance. According to customers, a key benefit of subscription models is that they pay one price for everything — the software, maintenance, support, and upgrades. Not every vendor that offers subscriptions today takes this approach; however, customers clearly indicate a preference for simplification and bundling.
• Set a consistent pricing structure. Software customers are concerned that the software vendor is free to increase the price of the software subscription at will and that customers will have to pay if they want to continue using the software. Some customers will be amenable to signing multiyear contracts to lock in the price of the software.

• Provide volume discounts to long-term users. Customers want to see benefits as a result of being long-term customers. These customers believe that they cost less to support than newer customers and want to be rewarded for their loyalty.
• Make the sales force agnostic. Sales compensation is one of the most difficult operational challenges of moving to a new licensing model. If the software vendor wants the salesperson to offer customers the licensing model that best meets their needs, the salesperson cannot be personally “disincented” to sell software via subscription.
• Continuously improve or add value to the product. With subscription licensing, vendors must convince customers of the value of their software on a recurring basis. This is different from the perpetual model where the customer is sold on the basis of software value at a single point in time. In addition, this is more challenging for certain types of software where the customer might not perceive a need for ongoing value.
• Investigate ways to improve your relationship with your subscription customers. As with any subscription purchase, to secure a renewal, the service provider needs to focus lots of effort on making sure that the customer is using the service and getting value out of it. In addition, the footprint of a subscription will grow within the organization only if existing users are happy evangelists. As an example, software vendors should run initiatives from their sales, customer service, and training groups to help ensure that customers are having positive experiences.

Remember that subscription is about gaining access to positive experiences. Traditional perpetual license models are based on the perception that the value of software is embedded in the product itself and that all value can be calculated up front. These models do not take into account the customer’s experience with the software over time, but subscription models do. The customer experience with the software shapes value perception. Experience-friendly models include subscription approaches that can adapt to changes in a customer’s business needs as well as those that scale up or down according to customer usage.