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The subscription economy – a dance between customer and business

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Technology has fundamentally changed the business world over the last 20 years. Whether it’s hardware giants leading the charge to the full emergence and evolution of software as a major player, even the technology landscape itself has shifted in that short time. So much so, that almost all (89 per cent) businesses are, or are planning to, adopt a digital first strategy. But what has driven this change, is it businesses that have seen the creation of new technologies and taken advantage or is it a growing demand from customers for companies to adhere more to them? And how much of this is being driven by the infiltration of the B2C sector into the B2B world – the drive for workers to access to the same tech they have in their offices that they do at home?

The B2C expectation

Software giants changed the landscape for consumers when they first emerged years ago. From one-time perpetual licenses for things like PC security, consumer expectations have changed as the software world has developed. From a one-time cost, they can now search for flexible payment models which can be paid over time and even see a tiered system introduced – higher payments for a better service, such as Netflix offering a HD service or Spotify a family package with an increased number of accounts.

How services are delivered has changed too, from waiting days or even weeks for something, consumers are now looking for services or products to be with them almost instantly after they’ve clicked purchase. Finally, thanks to likes of Spotify and Netflix, there’s expectation that they will get a personalised experience.

For consumers, this has taken a foothold for a while now and businesses have known what is expected of them, what they can deliver and the opportunities that come out of it. The B2B side has been slower to adopt this model, but as consumers get more used to it in their personal lives, back in the workplace, there’s a growing indication that they want the same formula there, too.

The B2B challenge

While there might be an indication for some businesses to be more consumer, the reality is changing things is easier said than done. Whereas consumers might be happy to try a new service with relatively minimal risk, that same risk is magnified when transferred to their professional lives and their business’ future where potentially workers’ jobs could be at stake. This is where the situation flips.

From a business perspective, there is risk. It requires investment to move to a subscription-based approach and importantly a cultural change within the business. Everyone will be affected, from purchasing to sales and finance – business leaders need complete buy in across the board or it simply won’t work. There can be no room for error with digital transformation, with each failed project costing businesses up to $655,000. Once the whole business is on board though, the benefits are clear if the transition is done right.

Opening up opportunities

From an income perspective, this approach opens up a multitude of new revenue streams, with more customers being able to access the lower fees for the services, which they might not have been able to afford upfront previously. It also ensures a consistent revenue stream and avoids those peaks and troughs previously associated with selling products.

From an operational perspective, it’s about making things smoother, removing any barriers that may slow the system down. Automation is key here and can simplify the whole process from quoting a service to a customer, through to the payment and delivery.

One of the key benefits that businesses should also embrace as part of this digital transformation is the data insights they’ll now have access to. Previously with hardware and perpetual software licenses, the relationship with customers was a one-time interaction – product was purchased, and the company would not know how or even if the product was used. This meant companies would not get any insights into the features customers like the best and so would have to guess for the next version of the product. Through using data insights, businesses can gain the knowledge into what features customers want, tailor their investment approach to the next iteration or offer personalised services depending on requirements.

Customer satisfaction is key

This isn’t a one-way street though and customer satisfaction and happiness with the new processes must be factored in. If customers don’t buy into the subscription system, then that regular revenue stream will soon dry up. However, with faster delivery times, less up-front costs and more personalised services, why would customers not be jumping on board the subscription train?

This may be down to the disruption customers will have to go through too. From changing how they spend their budgets through to potentially being reluctant to receive the regular influx of services that the business wants to push their way.

This is where the balance must be struck right. For some companies, it doesn’t matter if their customers are ready, they have the brand reputation and market share to make the plunge immediately. For others, it requires a more subtle and slow change, from offering only hardware-based services, to a hybrid hardware-software model and finally just the latter.

The real movement now is towards a subscription or consumption-based approach. However, in order to make the change successful, it ultimately comes down to implementing an organisational change within the business. If there isn’t buy in from all areas of the organisation, there won’t be a smooth transition, leaving the business failing to truly grasp the opportunities this new era of software presents.

Jamie Longmuir, Regional Sales Director, UK/BeNeLux/Nordics, Thales

Jamie Longmuir

Jamie Longmuir is Regional Sales Director, UK, BeNeLux & Nordics at Thales.