As consumers, the concept of buying a service by subscription rather than making a one-off upfront payment has crept up on us gradually. Over the past few years we’ve started to pay for films, music and other media for a monthly fee via services such as Netflix and Spotify.
But it’s a misconception that subscriptions are only for digital offerings. Some might remember the rental economy of old when most could only afford a TV if a monthly fee was paid to Radio Rentals or Rumbelows. With TVs becoming increasingly sophisticated – delivering HD, LED and 3D – increased prices means that this model is returning.
It’s also not unusual these days to lease a car rather than buy it and there are now businesses offering everything from jewellery and handbags to white goods by subscription. However today it’s not referred to as ‘renting’, but as ‘Goods-as-a-Service’.
In business too, a similar pattern is emerging with a clear shift in the way products and services are sold, especially now that cloud technology has made Software-as-a-Service (SaaS) an affordable and easy-to-use option.
A new survey really reflects this behavioural shift, showing that one-off product sales are set to decrease considerably. One-off pricing models are currently used by 84% of organisations, but predicted to fall to 51% in the near future.
However, whatever a business is selling – and whether they are selling to consumers or other companies – a business model based on subscriptions and usage demands flexible pricing options. There’s the constant need to monetise service offerings, drive recurring revenue and create value in customer relationships. The market is becoming increasingly competitive and providers need the freedom to differentiate themselves with a range of sophisticated pricing and packaging possibilities.
Yet at the moment, there’s a serious mismatch between what these providers need and what they are using. Typically, in-house systems are not agile or sophisticated enough to handle this evolution. In our survey, more than half of those polled (53%) are still using either an in-house developed system or manual processes to bill their customers.
An enterprise cloud billing solution can address these challenges perfectly. It enables businesses to mix and match service and usage-based pricing models and to set up and start billing for a new service without the need for any infrastructure or upfront licence fees.
It presents a real opportunity for early adopters. At the moment, according to the survey, only 4% use a cloud billing system. Some 60% of those without cloud billing say that they haven’t adopted it because they have had no issues with their on-premise billing solution, while 21% say that they are ‘just too busy’ to explore the cloud billing option.
In other words, few want to emerge from their comfort zone and take a proactive approach. But those who don’t act could actually leave themselves vulnerable to agile competitors coming into the market who do have more flexible options available to them.
It does seem there is still plenty of misunderstanding in the market with many potential buyers struggling to cut through the hype. Is a cloud billing system one that bills for cloud services or a billing system located in the cloud?
Some businesses just want to put the word ‘cloud’ somewhere in their descriptions, but this is creating confusion and even hampering the future development of the market. There needs to be more consistency and clarity so buyers know exactly what they are getting.
A true cloud billing system does not just reside in the cloud (although this is a requirement); it must also be designed as a native SaaS application. It should, of course be able to bill for cloud services, but furthermore should be applicable to any digital and non-digital products and services.
Beyond flexibility, cloud billing also helps to save costs. Overall from our survey, 37% named this as a perceived advantage – rising to 59% of respondents in manufacturing and 47% in the telecoms space. When the replies from larger companies (1,000-plus employees) are examined separately, 85% identified reduced cost as a key benefit of cloud billing.
Interestingly, cost saving appears to be much less important for smaller businesses which are more motivated by the need for a structured approach to billing and ensuring that the information they need to drive their pricing strategy is easily accessible.
Indeed, in the survey as a whole, ‘accessibility of billing information from anywhere’ was cited by 31% and widely seen as key in driving enhanced competitiveness in an increasingly crowded marketplace.
The ability of cloud billing to support business agility and flexibility and help companies match products to shifting market demands is key to its attraction. These characteristics make it highly attractive to small businesses and start-ups looking to get a foothold in the market by introducing new services quickly and cost-effectively. But they also appeal to more established organisations wanting to expand into new markets or geographies. It’s a real opportunity to get ahead in an increasingly competitive marketplace.