Our guest on the Subscribed Podcast is Amy Konary, Program Vice President at IDC. Konary is responsible for leading the SaaS business models and mobile enterprise applications research teams at IDC.
You’ve written and spoken about the 5 stages of the subscription maturity model. Is it really a linear path?
I don’t think so, and the reason for that is there are so many different elements of your business that need to transform as you’re moving from an early-stage subscription business to something that’s a little bit more optimized. There are so many different moving parts – there are technology changes, people, process, and culture changes. I have seen that for most companies it takes a pretty long time to get aligned around the idea that we’re going to grow our subscription business or maybe even transition entirely to a subscription business.
The idea of a maturity model has been really helpful for folks that are working within an organization and trying to move the organization forward with subscriptions. It’s really helpful to be able to point to, well, here’s how other companies have made this transition, or here’s how our thinking around product development and engineering should change, or here’s how customer support needs to change with subscription businesses.
Pricing has come a long way from perpetual licenses to subscriptions and now to outcomes-based pricing (where you’re only paying for results). How does this outcomes-based pricing come about?
Think of the subscription model as a foundation for flexible pricing models. Then as a provider, think about the different metrics to measure value such as an access-based model, a usage based model, and so on. This nirvana of alignment between value and outcome is really where the outcomes-based pricing model comes in.
In order to be successful there, you have to truly understand what benefit the customer gets from working with you. It has to be something you can measure, meter, and validate independently.
As companies embrace the subscription business model, how do they give customers flexibility without creating backend complexity for themselves?
A lot of times companies already have systems in place that are excellent at moving products and tracking SKUs, but not helpful in a relationship-based business… the challenge is – how do we manage our existing systems which drive a lot of our business but are not flexible enough to help us evolve into the type of company that we want to be?
There are a lot of elements – billing, customer support, tracking, rev rec and other financial components, etc. I think some of the biggest challenges are the fact that the subscription business, especially within an existing company, may only be a small component of the overall business as far as a revenue contributor early on, but that’s when you need to make these investments, so you’ve got to believe in it.
How often should a company revisit its pricing model?
I’ve been in the pricing consultant business for a while and pricing used to be an afterthought. It’s the last thing you do after you do all the product design and everything but that’s the complete opposite of the direction the world has gone in. Transparency and simplicity and flexibility, all of the things that people expect around pricing of services, has really shortened the cycle. You definitely have to be more nimble, more flexible, you need more information and the ability to analyze that information to make pricing decisions much more rapidly than in the past.
For more, check out Amy Konary’s guide on the 5 Stages of the Subscription Business Model.