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Market Trends: Prepare Now to Smooth the Inevitable Transition to a Subscription-Based Software Licensing Business Model

A Gartner Research Report

End users' demand for subscription-based software licensing pricing regardless of whether the software resides on-premises or in the cloud means that many software and services vendors that use the traditional model are in the process of transforming the business method for their business into a cloud-based or subscription model. For many vendors this transition is also being extended to existing on-premises products and customers with those products. This business-model transition is significant and requires enterprise wide strategic planning and execution, because it not only changes the operational approach, it also overhauls the sales structure of the business.

Providers embarking on the transition to subscription-based software licensing have to radically change their business operations into new, agile and flexible departments with a holistic and current view of customers that is difficult to get under a license/maintenance model.

The crucial business changes required by this transition include:

  • Different sales compensation, marketing and support models for both internal and channel partner teams
  • Changes to product development and planning
  • Flexible sales contracts for payment processes that meet the buyers' needs
  • Large changes to financial models, cash flows and company performance, as well as changes to reporting and stakeholder communication (for example, setting investor expectations and reclassifying reported segments)
  • Integration into enterprise systems such as CRM, ERP and supply chain management (SCM)

For providers' product strategists, determining how best to prepare for the product and financial transition is essential and will require careful consideration of the five strategic business factors listed above.

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Gartner Strategic Planning Assumption

"By 2020, more than 80% of software vendors will change their business model from traditional license and maintenance to subscription, regardless of whether the software resides on-premises or in the cloud."