Tech Sales Guide to Subscription-Based Business Models

Tech Sales Guide to Subscription-Based Business Models

Consumers today are changing the way they want to access technology and technology solutions. They’re moving away from outright owning their tech, instead choosing to pay only for what they need and use on an ongoing subscription basis, as evidenced by services such as Netflix, Amazon Prime, Apple Music, etc.

Subscription-based business models are becoming increasingly common in enterprise technology and are often referred to “as-a-service” or XaaS, where the “X” is simply a placeholder for “anything” that can be offered in this model, such as software-as-a-service (SaaS), device-as-a-service (DaaS), infrastructure-as-a-service (IaaS), etc.

These new subscription-based business models are having a major impact on technology sales organizations and how they operate. There are subtle but important differences in the challenges presented by “as-a-service” will differ depending on which sector of the technology industry you’re in. That’s why I created three foundational papers designed to help guide salespeople in hardware, software, and technology services through this industry-wide transformation.

Both 'XaaS' and 'subscription' refer to the scenario where a customer pays a provider up-front for the provision of a technology solution which, in most cases, includes a combination of both technology and services.

What is XaaS and What Does it Mean to Have a Subscription Offer?

There’s a lot of confusion in the technology and services industry about what a “subscription-based-offer” actually means, especially because there are a few terms for it that are used interchangeably. For example, we often hear of companies using the terms “as-a-service” or XaaS, where “X” refers to “anything”, and “subscription” to mean the same thing. That’s because the two terms are essentially synonymous.

A subscription is defined as an arrangement for providing, receiving, or making use of something of a continuing or periodic nature on a prepayment plan. Both “XaaS” and “subscription” refer to the scenario where a customer pays a provider up-front for the provision of a technology solution which, in most cases, includes a combination of both technology and services.

It’s important to note that neither a XaaS or subscription offer is limited by the platform that the solution is deployed on. More often than not, a subscription offer will be delivered virtually via cloud-based technology.

So, what does this mean for Sales teams and their strategy? In these three papers, I share the basics of the impact subscription-based offers are having on Sales teams within hardware manufacturers, software companies, and technology services providers so that you can better understand the basics of XaaS and develop a strategy appropriate for your sector.

Subscriptions for Hardware Manufacturers

For the last 100 years or so, hardware companies have formed the foundation of the technology industry. These companies are having to reinvent themselves at an extraordinary pace to avoid obsolescence. They have more work to do that other technology firms to transition to the XaaS economy.

In Q1 of 2019, 18 of the largest publicly traded hardware companies were experiencing average year-over-year services revenue growth of 1% compared to their product revenues which were, on average, declining by 1%.

Most hardware companies grew up providing on-premise technology solutions, and for many, that remains their predominant execution model. There is a commonly used saying in the technology industry that software is eating hardware. At TSIA, we believe that is only part of the story; it’s more accurate to say that hardware companies are moving towards providing broader solutions that include hardware, software, and services.

Read "A Hardware Salesperson's Quick Guide to Subscription-Based Business Models in Tech" if you’re a hardware manufacturer needing help making the shift to selling your products and services on a subscription basis.

Subscriptions for Software Manufacturers

Software companies fall into two distinct categories:

  1. Born-in-the-Cloud: These companies have “cloud-native” applications that were developed specifically for cloud deployment.
  2. Traditional Software: These companies have software that was developed originally for deployment in a traditional data center. Many of these companies have now created “cloud-enabled” versions of their software that have all (or many) of the characteristics of “cloud-native” applications.

Just like hardware companies, the software platform does not determine whether an offer is subscription-based. However, a cloud-delivered offer will almost always be sold as a subscription, and an on-premise solution will, in most cases, be sold as a traditional perpetual license deal.

Historically, one of the biggest challenges with any software deployment was around customization that made upgrading and staying with the current version of the software almost impossible. One of the key differentiators of modern born-in-the-cloud software is that they typically provide native tools that allow for greater configuration of the application, which reduces the need for any customization to happen which often requires custom code changes. This is a major driver of the shift away from traditional premise-based software.

Read "A Software Salesperson's Quick Guide to Subscription-Based Business Models in Tech" if you’re a software manufacturer looking to overcome the new challenges presented by subscription-based “as-a-service” business models.

Subscriptions for Technology Services Providers

The term “technology services provider” (TSP) is a catch-all description for the companies in the technology industry that typically don’t manufacture a product, but that are in the final stages of the value chain closest to the end customer. This category includes distributors, resellers, value-added-resellers, independent software vendors, systems integrators, and managed services providers.

In Q1 of 2019, 14 of the largest publicly traded technology services companies were growing year-on-year revenues by an average of 15%—considerably higher than both hardware and software companies.

But technology services providers are facing an interesting set of choices in the emerging XaaS environment. There is no simple answer, as it depends on what kind of company you are today and what you want to be in the future.

Read "A Technology Services Salesperson's Quick Guide to Subscription-Based Business Models in Tech" if you’re a technology services provider needing help with your sales strategy for “as-a-service” subscription-based offers.

Get Additional Help with Your Subscription-Based Business Models for Tech Sales

TSIA’s Subscription Sales research practice is both for companies who are still currently on the journey to a more subscription-based model, as well as those that have already made the transition and are looking to optimize performance. From hardware, software, and services, no matter which sector of the technology industry you’re in, TSIA has the frameworks, tools, and data you need to optimize your Sales team for the future of subscription sales. Contact us today to learn more about membership. I look forward to hearing from you!

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