We’re in the midst of an era of digital business transformation in which companies are innovating not only in what they are selling, but also in how it is sold, and how it is consumed by their customers. We’re seeing huge changes in the way buyers (consumer and corporate alike) define value. They’re no longer simply interested in buying point products, components or features and combining them themselves. They are looking for outcomes with improved experiences, and simpler, better ways to get things done.
The Shift to Subscription Models
One way in which the value equation is changing is through the growing popularity of subscription buying models. This June, in a clear indication of this shift, Apple made big changes to its App Store by making every product category available through subscription. (Previously, only a few categories, like streaming content, news, and cloud services, were sold this way.)
Apple’s new model has benefits for consumers, for Apple, and for its developers. Unlike one-time purchases, subscriptions provide consumers with price protection and ongoing access to new versions and the latest innovations for an agreed upon period of time. By subscribing to an app, they are buying more than a piece of software. They are getting ongoing access to an expanding set of desired capabilities that deliver a service in areas like finance, entertainment, or personal health maintenance.
For developers and for Apple, subscriptions yield a more predictable revenue stream and, provided quality of service, a long-term customer commitment to the product. This allows for more efficient investment in product development and innovation. Subscriptions also help companies develop deeper, more meaningful relationships with their customers, which leads to brand loyalty and products that better reflect buyers’ needs.
The Subscription Edge
Subscription innovation doesn’t just apply to digital products and services. The Dollar Shave Club, which sells monthly subscriptions to razors and shaving products, reached a $630 million valuation as of November of last year. On July 19 of this year, Unilever announced its intention to acquire Dollar Shave Club, reportedly for $1B in cash.
There are companies now offering subscriptions to things like fruit, vegetables, and flowers. Amazon’s Subscribe and Save allows consumers to subscribe to regular deliveries of groceries and home items like paper towels, eggs, and cleaning products. A number of clothing companies like Trunk Club are offering monthly deliveries of custom-selected items that consumers can either keep and pay for, or return.
Cisco Software and Subscriptions
Gartner says by 2020, more than 80 percent of software vendors will change their business models from traditional license and maintenance agreements to subscription-based services. As our customers digitize their businesses by reinventing their operating and business models, Cisco Software is assisting them by innovating in subscription models across our portfolio of solutions.
Our Security and Cisco WebEx meeting and collaboration products have long been sold by subscription. With Cisco ONE, customers can purchase software suites customized to deliver specific business outcomes in areas including collaboration, security, and data analytics. Many of these products are now available on a subscription basis, and the Cisco Enterprise License Agreement (ELA), a way for customers to license and subscribe to Cisco software that is aligned with their priorities and preferred purchasing models, includes subscription options.
With the flexibility and predictability of subscriptions, our customers can manage Cisco software products and services purchases as either operating or capital expense. This flexibility enables them to be more agile and helps accelerate the deployment of new capabilities and new business models.
Are you buying or selling via subscription in your business? Where do you see the most value in subscriptions? Are your customers asking for them?
As smart companies transform in response to customer demand for increased flexibility, and strive to differentiate through new business models, we’re going to see much more activity in subscription buying and other innovative models that benefit companies and consumers alike.
Great article and perspective. Subscriptions also provide an great way for customers & consumers to experience new capabilities (often via a time-limited free trial) before expanding to a broader deployment. Dan
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