Leveraging on Cloud Subscription model
In recent times many companies have translated themselves as a cloud company. It no longer offers its products in the form of physical, shrink-wrapped products to be deployed at customer's sites under perpetual license. Rather, customers subscribe to digital products and receive frequent software upgrades as well as a range of new online-only and mobile services.
With flat user growth, under perpetual-license model, the revenue growth driver was by raising average selling price - either through straight price increase or through moving people up the product ladder. This wasn't the sustainable approach. The perpetual-licensing model was also limiting from delivering new innovations and capabilities to customers. Historically, company delivered product updates only every 18 or 24 months, but the customers requirements were changing mush faster than that, with advances in devices, mobile apps and user preferences.
Subscriptions are the way forward :
Under the cloud model, the value proposition is about delivering high-quality service, not just new features, so uptime, availability, disaster recovery, and security have become critical. With modular service-oriented architecture new billing capabilities can be incorporated. Under subscription model, people essentially decide whether to renew or to move on unlike old world where you could sell something and reach out again in one-two year's time with next version of product. New metrics cropped up to measure the health of business- Subscriptions, annualized recurring revenues and average revenue per user.
In the early days of the software, Photoshop was a perpetually licensed product. Photoshop was released in 1988 and the technology for managing subscriptions didn't exist yet. The internet wasn't even a household technology yet. Since Photoshop was a major product for Adobe, they had to continually make money off of it, but the perpetual license isn't well suited to that. So each version of Photoshop had to be bigger and better to entice existing customers to spend more money. By the time Adobe ended the perpetual licensing model, Photoshop cost nearly $1000. Only professionals could afford to use it and free or low-cost alternatives began to crop up.
By switching to a subscription model with Adobe Cloud, they were able to bring in the recurring revenue they wanted, make the software affordable to everyone and fend off the threats from cheaper alternatives, and eliminate the need to constantly make huge improvements to the software or risk going under.
Other companies with products that were once too expensive for anyone but businesses or hardcore hobbyists, have found the same switch equally appealing. Another large developer of graphics products, Autodesk, has made their world-class 3d modeling and rendering packages available under an affordable subscription model. These are tools that once cost several thousand dollars. Microsoft, under threat from Google Docs, switched its Office product to the subscription model with Office 365 and managed to regain market share it was losing to Google.
