Could They Work for Cloud Services?

The pandemic
ushered in a period of digital transformation so unprecedented that it made
futuristic endeavors a reality. One major trend that emerged was consumers
gravitated toward platforms and services that offered a subscription-based
model — a trend that isn’t slowing down. In fact, UBS
estimates that the subscription economy will expand into a $1.5
trillion-dollar market by 2025, making it one of the fastest-growing industries
globally.

This shift
occurred partly because subscriptions reduce the risk of a daunting up-front
cost for customers during a time of heightened uncertainty, and give
organizations the ability to earn consistent, recurring revenue and build
business resiliency.

One area
that could benefit greatly from subscription offerings is cloud. With many
organizations shifting their businesses to the cloud, the question remains
whether organizations should consider subscription models for their cloud
services as a way of incurring increased revenue and improving their customer
experience (CX). What’s further, concerns associated with the cost of cloud
migration continue to be a barrier to accelerated cloud adoption — a problem
that a subscription model could help alleviate.

Solving Problems
Through Key Benefits

The market
is constantly changing, and enterprises should always be looking for ways to
stay ahead of the curve and unveil new solutions to benefit their overall
business. The subscription cloud model offers several key benefits to
organizations seeking to stay relevant in their respective industries. In
addition to giving companies an opportunity to look at their entire stack of
products, platforms, and services to see how a vertical integration can impact
their offerings, subscription models can also improve the relationship with
customers by driving loyalty and a better, more standardized CX. Instead of a
one-time transaction, a subscription is an ongoing relationship between the
enterprise and the customer — keeping the two engaged in a partnership based
on mutual benefits.

There are
also significant financial benefits. Fundamentally, the nature of recurring
revenue is more durable, and the security of clients committing to long-term
purchases ensures a stronger cash flow and more homogenized revenue. Beyond an
increase in returns, analysts place high importance on recurring business,
which has the potential to be a major advantage in proposals to banks for any
type of funding. The pandemic put this into perspective more than ever, where
companies with a strong revenue stream fared better than those without.

Moreover,
subscription-based services provide higher resiliency and performance due to
in-built multi-tenancy and scalability design. Companies that have not migrated
to the cloud can start integrating with subscription-based services beforehand
to enable API-first and cloud architecture in their ecosystem, which will make
it much easier for them to migrate to the cloud later as it will reduce the
overall complexity of refactoring and re-architecture of their on-prem
workloads that already leverage subscription-based services and APIs.

Potential
Roadblocks

While
subscription services are gaining impressive traction due to the multitude of benefits,
there are still several challenges that remain. One major hurdle is operating
model re-design and understanding how to build new technology and architecture
over existing stacks. This affects many standard operating procedures, such as
launching and building new features, developer access to organizational
resources, and more. It also will most severely impact companies whose existing
operating model has multiple silos, rather than one that is bundled
together.

There are
also partner challenges. By switching to a subscription model, the enterprise
is shifting to sell products as a service, which salespeople may not have the
skillset or knowledge to accomplish. For example, imagine a salesman who has
only ever sold toasters, and one day he is told that he must now sell breakfast
as well. While the salesman is proficient at selling toasters, he may not be
well-versed enough to sell breakfast, which requires a knowledge of additional
factors, such as nutrition and allergens. The need for a highly trained
salesforce that can sell subscription-based services may leave organizations
questioning how they will retain their talent and train them for this new
task.

Additionally,
many companies have what is referred to as a “cash cow” product, which brings
in significant revenue. Trying to tack on subscriptions and SaaS to an existing
cash cow can result in friction and costly re-architecture of the legacy
application. This is especially true when the resource utilization is highly
predictable and already budgeted.

Seamless Integration

After
identifying and addressing any potential challenges, it is time to prepare for
a successful integration. The subscription model is highly suitable for all
industries, but the transition differs for every company depending on its
business model and ecosystem. For example, some companies have products that
are oriented toward hybrid cloud — meaning their model must be constructed to
support clients operating on prem. Regardless, the integration of subscription-based
solutions is usually much easier if the service endpoints are well defined with
top-down API consumption in mind. It also reduces the huge complexity from
platform infrastructure setup and maintenance and provides better control on
usage and budgeting of underlying resources.

It is
evident that there are two major trends at play when deciding whether to offer
a subscription model for cloud technology — a large-scale organizational shift
to the cloud, as well as a consumer shift toward subscription model offerings.
While trends signify that this technology has the potential to result in a wide
array of benefits for both enterprises and consumers, there may still be many
challenges to overcome.

Cloud is not
a one size fits all, and organizations that clearly understand their business
model and key objectives for the future will be first in line to overcome the
challenges that await.