When Apple launched iTunes the concept of access over ownership disrupted traditional business models. Why own CDs when you can get access to music on demand? Why own anything when you can access it as and when you want it and only pay for what you consume? Welcome to the subscription economy where companies like Microsoft, HPE etc. are changing the game for the hi-tech industry.
Shifting gears: From transactions to subscriptions
Consider how software was sold until recently. Companies sold perpetual licenses and as the software got heavier and more complex, the licenses became costlier. As affordability and user experience became problematic, the number of customers started dropping. No one wanted to pay 100% to use just 20% of the software anymore! Realizing this, software vendors started offering services and software on a pay-as-you-go model. Improved affordability meant an increased customer base and a boost in Y-o-Y growth.
Today, more and more customers across the hi-tech value chain are opting for subscription models to save on large upfront investments, get the flexibility to scale on demand, and avoid the constant hassle to maintain and service the products they buy. Offering products as a service is a win-win scenario for all.
Subscribing to products as a service helps customers get more bang for their buck, while product vendors gain valuable insights on product usage and performance. A subscription approach can help hi-tech companies:
Improve product performance and deliver a superior customer experience
A networking hardware provider selling data center routers moved to a subscription-based approach. Now instead of selling the hardware, they sell access and usage while retaining the ownership of the router – and by extension its data. This enables the company to securely and remotely access, diagnose, and troubleshoot the router even before the customer complains of any issues. Imagine the impact of such a service on customer experience!
Connected products are creating a data based constant feedback loop allowing Hi-Tech companies to monitor product performance, predict and resolve issues proactively, and suggest measures to optimize product performance. Bound by privacy agreements and security protocols, access to cloud based product data is enabling industry players to improve reliability and uptime of the products. Technologies such as AR and VR are creating opportunities for next level customer support and field service.
Boost revenue through new product capabilities and services
A significant part of new age products is software. As such, it’s easy to improve product performance through software updates sent directly to the device. Think OS upgrades on your phone. A very common occurrence today, OS updates boost the performance of your phone, introduces new features, and improves UX/UI without the need to go to a store. In certain cases, these upgrades would be chargeable and could become an additional source of revenue for the product company. For a company using a product on scale, remote upgrades can significantly minimize the time and effort involved.
Differentiate to build lasting customer relationships
In a market full of similar products, differentiation is essential for success. Customers today are looking beyond just the product and asking for real-time support, remote maintenance and upgrades, and self-service options that are easy to use. Product vendors need to deliver on these needs, and must shift focus from just creating products to building options for lifetime post sale support.
Companies shifting to a subscription model need to define and follow a strategic roadmap to shift. Take a phased approach for migrating your existing customers on the new model. Educate, empower, and support teams driving the change. Also, price it right with an aim to increase both adoption and lifetime value. And offer value beyond just a pricing change – experience, packaging, ancillary services, flexibility etc. that align with the customer’s goals.
The tides have turned in the favor of a subscription economy. The era of one time product sale is over, and the focus is now on building recurring revenue. Whether it is Apple selling services like iTunes or Apple Music, or network equipment providers offering routers and switches as a service to telcos, both B2B and B2C models are undergoing a significant shift – from transactions to subscription. Can you capitalize on it? Let us know your views in comments below or write to email@example.com
David Ranjit William
Digital Head, Technology BU, Wipro Ltd.
David has over 20 years of IT experience working in the Communications & Hi-Tech industry. He is responsible for driving the Digital strategy for the Technology BU at Wipro. As part of this role he is responsible for demand generation, competency building, solution enablement and brand building initiatives for the Digital business within the Technology BU.