SaaS Boom Puts Software Sellers on Road to Recurring Revenue

Software industry revenue models are changing. Complex and hybrid monetization models will dominate the market to deliver flexibility for producers and end customers, according to technology firm Revenera’s Monetization Monitor: Software Monetization Models and Strategies 2021 report.

This report provides product executives at software and device companies with benchmarks about software deployment, pricing, and monetization.

Nearly 400 top-level corporate executives at software and device firms responded to a survey revealing the growing importance of SaaS and subscription models for the software industry. The Revenera study shows that today’s dominant software monetization models are subscription and perpetual licensing.

Even more significant is that the implementation of a recurring revenue subscription model was the top driver of change over the past two years. The report highlights steps companies must take during this transition.

Revenera conducted the global survey from mid-April through mid-June 2021. This research project looks at software producers’ software business models, pricing, usage, and transparency. Job levels of the 374 survey respondents ranged from director and above (33 percent), manager/team leader (33 percent), and individual contributors/consultants (34 percent).

Significant findings from the study revealed:

• Most companies have a mix of deployment models. Software as a service and on-premises software are both used extensively (for more than 51 percent of a company’s business) by 34 percent of respondents each. Embedded software is still used extensively by 20 percent.
• SaaS is growing most rapidly, with 59 percent indicating an anticipated increased use over the next 12 to 18 months. An even greater reliance on SaaS is planned by product managers (72 percent).
• Only 30 percent of respondents say that pricing and value are “totally aligned.” Confidence in alignment between price and value jumps significantly for monetization models that are more accurately tied to measurements of usage and engagement. Of companies that can gather usage data “very well,” 61 percent feel pricing is aligned with value.
• Over the past two years, the top reason for changing software monetization models was to implement a recurring revenue model (reported by 62 percent). Organizations planning to change monetization models are doing so primarily to enter new vertical markets (reported by 62 percent); product managers are more active in their pursuit of new vertical markets, with 72 percent looking to make this move.
• Top motivators for changing licensing policies are to provide temporary evaluation/try-before-you-buy (reported by 41 percent); add/improve automated enforcement (39 percent) and add new pricing meters (34 percent).

A one-size-fits-all approach to monetization or deployment strategies does not keep pace with varied customer needs. Today’s software suppliers must support customer needs by optimizing a mix of monetization and deployment models

It is extremely important for software companies to manage the different options in a streamlined way on the backend. That prevents it from becoming an operational headache.

As suppliers focus on recurring revenue models, the end customers benefit from continuous delivery of new features and value. The distribution of software has become a more agile concept, driven by frequent updates.

In addition to the increased growth of subscription models, 59 percent of respondents in this year’s survey report an anticipated increase in their use of SaaS. Yet only 29 percent also report an anticipated decline in on-premises software.

Suppliers must also be prepared to support multiple deployment models simultaneously, rather than anticipate the move toward a single approach for software delivery.

In a subscription business, every function is in some way a revenue function rather than a cost center. For example, support is traditionally thought of as a cost center as a percentage of revenue. It is no longer the case. Your renewal and growth of a subscription business are dependent on exceptional customer service.

With the promise of revenue predictability and recurring income, it is no surprise that post-pandemic, many enterprises are evaluating whether they too should adopt a subscription business model.

Successful subscription management is far more than just enabling recurring revenue. It involves rethinking your product strategy, customer engagement, and marketing. A business will need a lot of cross-functional collaboration since customer response is on a real-time basis.