There is an observed rising trend of the subscription model in 2023 and the subscription commerce market is growing exponentially, according to Shivbhadrasinh Gohil of Meetanshi. Companies such as Porsche, Spotify, and Amazon experience the advantages of the subscription model in eCommerce such as good client relationships, inventory control, and convenience.
Information technology context
In the Information technology context, the benefits and disadvantages of subscription models are also on the rise.
Karly Li, vice president (Edge Solutions) and country general manager (Hong Kong) at Tech Data describes the subscription model also known as the Technology-as-a-Service model, as a pricing structure that allows companies to use software, hardware, and computing infrastructure solutions for a periodic fee. She adds that instead of owning the technologies, businesses can pay for continued access to the tools they use. Companies can also enjoy benefits such as regular updates, customer service, new features, and more as they continue to pay for support, upgrades, and maintenance.
“Moreover, in traditional models, businesses end up investing money in buying new versions of the same product. Subscription models automatically provide access to the latest version of a product or service in real-time.”
Karly Li
Highs and lows
“Subscription models can prove beneficial for organisations facing capital or budgetary challenges and for those looking to reduce or eliminate over-provisioning costs. Additionally, organisations with unpredictable usage patterns and seasonal demand variations can scale consumption up and down as needed with a subscription model. Such models also help optimise resource usage as businesses do not need to make a large investment upfront,” Li notes.
However, Li advises enterprises to be careful of changing market dynamics.
“A time may come when the subscription model no longer aligns with an organisation’s long-term goals, its customers' preferences, or is a good fit for its workforce. If the model also does not integrate well with existing tools and systems, and hampers productivity, reassessing the model and making the required changes may be necessary,” she explains
Data in a hybrid cloud environment
Li says that cybersecurity parameters are constantly modernised through securing existing networks and data, identifying new threats, and patching up existing vulnerabilities.
“Compliance is often addressed through providers adhering to legal requirements, industry standards, and certifications, which are regularly audited. Overall, the subscription model's reliance on established cloud services provides organisations with a well-structured framework to uphold security, compliance, and data availability in the hybrid cloud context."
Karly Li
Furthermore, to successfully transition to a subscription model, businesses should work with experienced partners who possess the expertise needed to guide them through the entire process. This includes access to resources, services, and solutions that would help ensure essentials such as security and compliance. “
As an example, Li explains that Tech Data’s Centre of Excellence (CoE), provides a suite of ready-built and tested solution offerings that help accelerate the move to a subscription model.
“The company’s CoE offers guidance, research, training, and solutions support for enterprise-wide transformational initiatives, like transitioning to a subscription model, “ she says.
Barriers and benefits
“Installing, operating, and configuring IT resources in today’s tech landscape can prove to be both labour and capital-intensive,” says Li.
Li notes that some major advantages of subscription models are the following: saving up on capital, boosting operational flexibility, reducing technical risk, reducing financial risk over the contract term, and decreasing overall dependency on internal IT resources.
Enterprises also have the flexibility to scale up and down streamline operations and reduce costs that enable them to focus on other priorities and strategies.
“On the other hand, from an IT standpoint, businesses that have legacy infrastructures in place might find it difficult to transition to a subscription model, where they would be required to virtualise their tech stacks. Moreover, because subscription amounts tend to vary, moving to a subscription model also requires extensive recalibration of some backend processes, especially accounting and CRM systems.”
Impact of post-pandemic trends
“Enterprises may be returning to on-prem models but it's important to note that this does not necessarily mean bad news for subscription-led models. There are multiple interlinked facets to this – as companies return to the office, cost, cybersecurity, and compliance concerns are driving the repatriation to on-prem but many companies are also moving forward with the hybrid way of working. This involves retaining critical applications or sensitive data on-premises while leveraging the cloud for everyday operations. Workforce familiarity with cloud technologies will also play a critical role,”
Karly Li
She says that it is important for enterprises to invest in upskilling and training employees for cloud environments so they will continue utilising those skills and, retaining cloud subscriptions.
By 2023, end-users are forecasted to spend $600 billion on public cloud pushing cloud providers to deliver better solutions based on evolving customer needs and feedback. This could potentially influence subscription models by bridging the gap between on-prem and cloud environments, according to Li.
“Ultimately, tracing the final impact of the move to on-prem on subscriptions is a challenge. But large-scale market evolutions that could potentially impact both on-prem and subscription models can certainly be expected,” Li says.
Manage risks
Gartner notes that moving to a subscription model is more risky compared to traditional buying, perpetual licensing, or term-based subscriptions. To overcome risks, Gartner recommends that CSOs to reexamine their sales process, seller coordination and incentive plans.
