I read an interesting blog with the headline “Every Company Is Up for Disruption, So Keep Your Products Simple” and I could not think about the discussions that I have had with many established software vendors (ISVs) that have a robust ongoing software business based on traditional perpetual software licensing model to subscription-based software licensing models. This transition causes many organizations big headaches and it is a fallacy to think that the change is only impacting smaller companies with limited cash.
Larger organizations that have a need to move towards a subscription-based model runs into issues specifically on sales force compensation and how to change the behavioral model that direct sales people have when choosing whether to sell the subscription-based model vs. perpetual license model.
What has been fascinating to learn in some of the Value Workshops that we have done is that many large organizations have already applied a subscription-based licensing model even if the solution itself can be regarded as traditional on-premise software solution. These companies sell their solution with 3 years contracts and in some cases the subscriptions are paid well in advance. What we can learn from this is that it is not always about the technology, it is also how you package your solution from a contractual perspective.
The change of licensing model is of course just one dimension, and the article in TechCrunch give interesting examples of how a smaller and nimbler company took the business from a larger and more established vendor. The key in this case was that the nimbler vendor had probably only one-tenth of the features of the larger vendor and based on the article, this might been exactly one of the reasons why. I have seen this trend in the software markets the past couple of years where the amount of features within the solution is not deciding factor, it is more about the easiness and “get-the-job” done kind of thing.
I have a similar experience from my own past. I was competing against an industry gorilla within Business Intelligence space and I was wondering how I could possibly win the case. I finally ended up stating to the prospect as follows:
“I know that I am competing against an industry gorilla. I also know that the solution they offer have probably 50% more features and functionality. I also know that they have lots of PhD’s on staff but there is something that you will get with our package. We have hundreds of companies, we are all entrepreneurial and I will give my personal mobile number and you can call me if you have any issues with our solution. I got the deal following week”.
Every established software vendor has to be extremely aware of disruption in technology and to make sure that they are not the one that is going to be replaced by a smaller and nimbler competitor. There are lots of examples of this from our past and we will see more in the future, I am pretty sure about that.