We're seeing the seeds of a revolution across consumer and corporate markets with the rise of the digital economy and subscription-based services.
As service provider offerings mature, the need for businesses to adopt innovative pricing and product packaging becomes ever-greater to enable differentiation in an increasingly crowded market and create value in customer relationships.
Here, we speak to Louis Hall, CEO, Cerillion Technologies about the issues around the subscription revolution and how the newly emerging cloud billing approach is helping to drive business agility and maximise revenue in the new economy.
TechRadar Pro: What evidence does your recent survey gives us that the 'subscription revolution' is actually happening?
Louis Hall: The research highlighted a shift in the way products and services are sold: away from a traditional one-off product approach towards a more flexible pricing model based on subscriptions and usage.
One-off pricing models are currently used by 84% of organisations surveyed but the research shows that this proportion is set to fall to 51% in the future. In contrast, new pricing initiatives built around an on-going service relationship are growing steadily, including subscriptions, pay-per-use and freemium pricing models.
We are experiencing a shift in the way people purchase and consume goods and services as part of the subscription revolution. The survey results reveal a distinct drop in non-digital products from 56% offering them now, to 45% expecting to continue offering them in the future.
Non-digital services follow the same trend dropping from 67% to 58%. In contrast, the proportion of companies offering digital products is set to rise from 39% to 46%, and those offering digital services will increase from 44% to 51%.
TRP: What are the main drawbacks with a subscription only business model?
LH: The simplicity of subscriptions makes them appealing to organisations and their customers, but in that strength, we can also see an inherent weakness. The best services are often the simplest ones but the simplest are also the easiest to mimic, particularly in the digital services market where the cost of entry is relatively low.
As competition increases, the need for innovative pricing and product packaging becomes ever greater in order to differentiate from an increasingly crowded market and create value in customer relationships.
Starting with a subscription-only offering is a great way to gain a foothold in the market and start developing services.
However, to move to the next level of growth, organisations need the flexibility to mix and match subscription and usage-based pricing models, and the system performance and scalability to support an exponential take-up of service users.
In short, to achieve competitive differentiation in tomorrow's economy, businesses must be able to manage complex billing relationships and package offerings to address the breadth and depth of consumer and corporate needs.
TRP: How are businesses changing the kinds of billing systems they use in order to differentiate themselves?
LH: The survey indicates that 53% of all businesses are still using either an in-house-developed system or manual processes to bill customers. But this situation is unlikely to last much longer. In-house systems are typically not agile or sophisticated enough to handle the changing billing needs of business as they transition to subscription services.
Instead, we are likely to see the ongoing rise of enterprise cloud billing. It is a new approach which can deliver agility for businesses in mixing and matching service and usage-based pricing models, while enabling them to quickly set up and start billing for a new service without the need for any infrastructure or upfront licence fees.
TRP: What does the survey tell us about how the emerging cloud billing market is likely to develop in the future?
LH: The survey results paint a picture of a market about to undergo rapid growth. It is currently relatively small in the UK, with just 4% of survey respondents using a cloud billing system or Software-as-a-Service (SaaS) approach.
However, a further 11% say they are using a managed service – and with cloud penetration generally on the rise – Cerillion foresees dynamic growth in the cloud billing market as businesses strive to meet the demands of the new subscription-based economy.
As the subscription revolution gathers pace, agility, flexibility and matching products to the market's demands are key. This is the same both for small businesses or start-ups looking to get a foothold in the market by introducing new services quickly and cost-effectively, and for more established organisations wanting to expand into new markets.
TRP: What, according to the survey, do businesses see as the main benefits of cloud billing?
LH: The survey identified cost savings as the biggest perceived benefit of cloud billing systems. This attribute was highlighted by 37% of the sample and was most strongly supported by respondents in the manufacturing (59%) and telecommunications (47%) sectors.
Cost savings are clearly a major attraction for large companies (1,000+ employees), in particular, where 69% currently use on-premise enterprise software and 85% identified reduced cost as a key benefit to be derived from cloud billing.
Cost saving appears to be far less important a factor for smaller businesses who have had to take a lower cost approach to their billing anyway. It appears that these organisations are motivated more by wanting to introduce a structured approach to billing and ensuring the key information they need to drive their pricing strategy is easily accessible.
TRP: What does the survey tell us about what organisations are looking for from cloud billing providers?
LH: The survey revealed that 'proven billing expertise and having a track record of delivery' is the characteristic that businesses most look for in their cloud billing provider with 29% of respondents referencing it.
Businesses in the retail sector are most interested in their cloud billing providers demonstrating this capability with 58% of respondents referencing this; those in the education sector see excellent customer services as the key attribute, chosen by 40%; whilst the healthcare sector is most sensitive to industry-specific knowledge, picked by 38% of respondents as the most important.
To achieve sustained success, cloud billing providers will not only need to offer a genuine SaaS billing application, but must combine a heritage of billing expertise with excellent customer service and industry-specific knowledge. Very few providers can deliver this potent combination.
TRP: In summary, how in your view can businesses most effectively capitalise on the new service environment created by the subscription revolution?
LH: The new subscription-based economy requires the flexibility to combine subscription and usage-based pricing models, plus the ability to tailor offerings to the full range of B2B and B2C segments. Without this, even the best service in the world will be at the mercy of lower-priced imitators.
Fortunately, solutions are now coming on stream that can deliver the kind of business agility that the emerging breed of service providers need to be successful in the new economy.
With cloud billing solutions, businesses can choose the software edition and features that are right for them, and benefit from regular software updates as part of the service.
In summary, as the subscription revolution continues to gather pace, service providers can move forward with added confidence in the knowledge that enterprise billing solutions are now readily available in the cloud, and capable of enabling them to differentiate and drive business advantage.
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