Content
Introduction1. Market evolution
.1.Transformation of business: shift to the subscription economy
.2 Subscription based economy model overview: characteristics and functions2. Subscription Models applied in SaaS businesses
.1 SaaS Subscription model: key features, market drivers and deterrents
.2 SaaS in Russia: trends, problems and opportunities
.3 The impact of SaaS subscription services on the economy and the society3. Real scenarios of SaaS infrastructures and applications
.1 SaaS Subscription businesses: comparison of foreign and Russian cases
.2 SaaS Subscription model in (ADD)
.3
Success strategies to attract and retain subscribers123456
situation on the market is constantly changing. The nowadays consumers are more attentive and look for newer, more convenient and easier ways of accessing goods and services. There is a common idea of the “right now” need, which means that a product cannot be delivered later. It should come at the right moment to satisfy a spontaneous and transitory wish. But, at the same time, as it is known that the wish is transitory, there is a need to be able to stop using this product as fast as it is not useful anymore (Hutzler, August). They do not necessarily want to buy a product that can became very quickly old-fashioned or dysfunctional. In the report prepared by The Economist Intelligence Unit in 2014, it is said that “80 percent of customers are demanding new consumption models including subscribing, sharing, and leasing - anything except actually buying a product outright” (Tzuo, The subscription economy: a business transformation, 2015), in other words, that are the models that mainly respect an idea of temporary acquisition.means that businesses need to handle customer loyalty, pricing, and selling strategies in a very different way to keep their successful relationship with their consumers alive. Since consumers are trending towards a hassle-free shopping experience, more and more companies, looking for new growth opportunities, are changing their business strategies from a pay-per-product model to a subscription based model. Indeed, this subscription model is not new - for instance magazines and newspapers have been selling subscriptions for few centuries (Warrillow J., 2014). But, more recently, new sorts of industries have adopted the idea of intensifying the subscription based model selling strategy. The year 2007 was called by experts a focal milestone in the global shift from the traditional economy to the subscription economy (Zuora). Since then, over all the industries, this change happens more evidently in the software industry with the transition from a per-pay-use license model to the SaaS subscription model (Longanecker, 2015).paper is focused on the software-as-a-service (SaaS) as its success is becoming largely noticeable around the globe. Over the past few years, commercial cloud computing (SaaS is a part of this phenomenon) has been rapidly increasing in gaining market share (Darrow, 2011), making new possibilities available for both software vendors and consumers. These changes happen with a sustained attention of the traditional perpetual software markets: without deep knowledge about cloud computing, new business and revenue models, strategies of attracting and retaining consumers, they risk to lose their weight in this new business reality. In the research Global and Russian SaaS-Solutions Markets in B2B Segment presented by J’son & Partners Consulting in July, 2015 it is said that “In accordance with IDC forecasts, 27.8% of global corporate apps will be based on SaaS model by 2018, it will generate $50.8 bln revenue in comparison with $22.6 bln and market share of 16.6% in 2013” (Consulting, J’son & Partners, 2015).subscription model is a global trend which could not stayed without attention in the Russian business landscape. Experts from Paralleles estimate that the share of SaaS in the cloud solutions sales in Russia reached about 70% and in the segment of small and medium businesses almost 90% over the last few years. Another analysis provided by iKS-Consulting estimates the pace of growth of SaaS market to be around 25% in 2015-2018. The SaaS market is growing despite the fact that the Russian IT industry is generally stagnating (CNews Analytic, 2015).
Problem statement
The leading players of the Russian software market express different opinions about perspectives of SaaS subscription model in Russia. While the smallest part of the software companies managed already to find and take their unique market niche and are successfully expanding their businesses now, the biggest part of suppliers demonstrates much modest growth of their SaaS services. But in this new realities, it is becoming important to understand how SaaS subscription model works and more challenging, how it is changing relationships between companies and consumers to use profits of basing a business on SaaS model.
Field of study
Subscription economy in Russia
Object of the research
SaaS subscription model
Objective
Derive particular strategies of attracting and retaining subscribers of SaaS platforms with the subscription business model.
Tasksachieve this objective, the following tasks are formulated:
. Analyze theoretical and methodological aspects of the subscription economy;
2. Define features of the SaaS subscription business model;
. Prepare and interpret a database of the cases of the Russian and foreign SaaS solutions for business with subscription business model;
. Check hypothesis of the study that the subscription model, applied in a software company suit better clients’ needs but it can distract clients if implemented carelessly.
Methodology
Structure-functional analyzes
Methods
General methods: Literature review, researching academic articles related to subscription economy and SaaS industry with focus on the subscription model and Russian SaaS market.method: Case study
Research questionshifting from the traditional licensed model to the subscription model in the software business help attract new customers and turn old clients into subscribers?
The hypothesis of the study: Hence customers have very specific needs but do not want to pay for a customized solution for their problems, the subscription model, applied in a software company, will suit better clients’ needs.
Delimitations of the study
This paper studies a very specific kind of companies that implement the subscription model which are the software-as-a-service (SaaS) companies. The SaaS business model, in general, is quite well examined field in the literature. Nevertheless, it is still possible to find less explored issue such as the SaaS as a part of the subscription economy. Moreover, we will focus on studying SaaS subscription model applied by the Russian providers of the software solutions mainly for business purposes. This study is an attempt to bring new ideas into chosen issue, mainly concerned with the implication of this model into the Russian business landscape.
Professional significance
The research organizes and explains the basic theoretical concepts, practical tools and strategies of attracting and retaining subscribers in the subscription models applied in SaaS businesses.
Definitions of key termseconomy
This term describes the business process of offering subscriptions to consumers. It was not popular in consumer marketing until recently, yet there is an opinion that subscription concept is nothing new - for example, in publishing it goes back to 17th century. The term describes a new business landscape in which the traditional pay-per-product (or service) companies are moving toward the subscription-based business model. For some companies, their entire business relies on the subscription business model. Here can be named such companies as Netflix, Spotify, Zipcar, and all SaaS companies (Tzuo, The subscription economy: a business transformation, 2015).
SaaS Subscription model
A business model where a customer gets an access to the product or service after paying a subscription price. The model was pioneered in publishing few centuries ago - at least at 17th century, but is now used by many businesses in different industries (Longanecker, 2015). To clarify grammatical side of using the term “the SaaS subscription model”, we should notice that in our research, the terms “the SaaS subscription model” (sg.) and “the SaaS subscription models” (pl.) are equal and substitutable. But, being more precise, the term “the SaaS subscription model” (sg.) is used as a name of a general phenomenon in economics while “the SaaS subscription models” (pl.) phrase encompasses variable types of the SaaS subscriptions which is based on the classification which suggests two core SaaS subscription models:
1. Monthly Subscription Model: In the Monthly subscription model a client is charged and pays each month via credit card of automatic e-payments. An electronic license agreement does not include any fee or penalty for cancelation of the subscription at any time.
2. Term Subscription Model: In the Term subscription model a client pays for a certain period of time (mainly 3, 6 or 12 months). The subscription agreement frequently includes fees for cancellation during the term.
Software-as-a-service (SaaS)
A model of licensing and delivering software in which vendors or service providers, instead of selling it to companies, make it available to customers over the internet on rental base using cloud-computing technology.
Freemium
Freemium (from 'Free' and 'Premium') is considered to be a pricing and marketing strategy which can be applied in either the monthly or term subscription models when a core product is given for free to a large group of users and premium products are sold to a smaller fraction of this user base (Froberg, n.d.).current research paper Subscription Model applied in SaaS Subscription businesses: characteristics, functions, strategies to attract and retain subscribers consists of an introduction, three chapters, conclusion, references and applications.
The paper is based on a deep review of the business and IT books and articles taken from professional sites. We also used information from professional forums and online versions of business newspapers which covered the chosen issue.how firms do business is the first step to understand how a marketing strategy can affect a company’s future. Business models have been widely explored in literature and it is increasingly suggested that business model innovation is a key to business success (Lev-Ram, 2014). Indeed, a business model is a concept that embodies architecture of a business with the aim of creating value for customers (Teece, 2010). In his work Teece says that business model articulates how the company will convert resources and capabilities into economic value. The business model follows the context where the company is inserted. To accomplish a revision of the business models, we put attention on the research A literature and practice review to develop sustainable business model archetypes (Bocken, N.M.P., Short, S.W., Rana, P.,&Evans, S., 2014) where the authors give in-depth observation of the theoretical base of this subject. According to this paper, “a business model is a conceptual tool to help understand how a firm does business and can be used for analysis, comparison and performance assessment, management, communication, and innovation”.models have been defined and categorized in many different ways. It is possible to think in two main business models, the traditional model and the internet based one (Rappa, 2008). In this paper we focus our attention on the internet subscription based model applied in SaaS.the SaaS (Software-as-a-Service) business model is one of the most recent trends in the contest of business models analyses. A research Saas (software as a service)-infrastructures and applications in real scenarios (de Miranda, 2010) gives a profound review of the origins of the SaaS business model. Miranda says that the SaaS business model became a successor of the ASP (Application Service Provider) business model, which in its turn appeared to deliver software to a broader market share. As a new business model, the SaaS emerged to fix ASP’s “disadvantages and covet its opportunities”.the author emphasized, in contrary to ASP, SaaS clients “don’t have to buy the software solution and then pay the provider to host it, but rather just pay for the usage of the service”. Moreover, the clients get better assess the costs since the payment model is based on a monthly/annually fee. Another advanced feature described by Miranda is that SaaS provides makes stronger protection of intellectual property, which results can be seen in the cases of revenue stream or the proprietors of the software solutions.of the most significant articles for us focusing on SaaS phenomenon became an article Software as a Service (SaaS): An Enterprise Perspective written by the Microsoft Corporation’s authors (Carraro G., Chong F., 2006) in the period when it was not yet trendy to study it. They addressed SaaS from the perspective of the enterprise consumer. The authors write that “SaaS application access is frequently sold using a subscription model, with customers paying an ongoing fee to use the application. Fee structures vary from application to application; some providers charge a flat rate for unlimited access to some or all of the application's features, while others charge varying rates that are based on usage”. That makes clearly reasonable for them that the subscription model in comparison to the one-time licensing model “is expected to take advantage of the benefits of centralization through a single-instance, multi-tenant architecture, and to provide a feature-rich experience competitive with comparable On-Premise applications”.the PwC report (PricewaterhouseCooper, 2007) where the key findings about the current software industry environment were provided it became well-defined that consumer behavior had changed a lot recently and that vendors now are reevaluating their software pricing and delivery models to accommodate this change. In this research prepared nine years ago there was also already noted a process of shifting from up-front paying to periodic payments. Nevertheless, it took a long time for this trend to become widely discussed and studied which resulted in high relevance of this issue in last two years among software vendors.most interesting part of the PwC report is the forecast given up to 2016. They predicted the spread of the SOA (service-oriented architecture) among both vendors and consumers: as for enterprise consumers, “it gives them full control over the value they leverage from their software”, meanwhile the vendors get an opportunity “to integrate their applications in real life for customers and other vendors”. All this forms “a stable service-delivery environment where customers have traded vendor subscriptions and infrastructure lock-in for true agility and customization”.to the book The Automatic Customer: Creating a Subscription Business in Any Industry (Warrillow J., 2015), the lifeblood of the business is repeat customers, or, how he is calling them in the book, automatic customers. According to John Warrillow, companies that know how to find and keep subscribers, get the huge opportunities offered by the emerging subscription economy. He claims and proves in his work that “automatic customers are the key to increasing cash flow, igniting growth, and boosting the value of your company”. The author shows that subscriptions are not limited to technology or media businesses. Companies in almost all the industries, from start-ups to the global corporations can implement subscriptions models into their business to gain more. Warrillow provides a breakdown of nine different types of subscription models for winning automatic customers and illustrates them all with instructive examples. His blueprint included the following:
. Membership website model;
2. All you can eat library model;
. Private club model;
. Front of the line model;
. The consumables model;
. Surprise box model;
. Simplifier model;
. Network model;
. Peace of mind model.
The ideas given in the book are universe and can be applied
in any kind of industry. We used this list to specify subscription models which
could be useful and profitable for SaaS businesses.big step in exploring the
core difference of the subscription economy from the traditional one was made
by the Anne Janzer in her book Subscription Marketing (Janzer, 2015). In this
book she shared all her knowledge accelerated with more than 20 years of
experience working with the high tech businesses. The main point described and
explained by the author in this book is of a high significance for subscription
marketing. She suggests a new label - value nurturing - to identify the process
“of helping the customer realize value from your solution”. She shows that
value nurturing is the fourth important level of relationships between a
company and a customer. The traditional customer journey looks the following
way: firstly, finding prospects (lead generation), secondly, convincing them of
the potential value of the company’s solution (lead nurturing) and then making
the prospect a customer (conversion). Janzer adds that “the marketing
responsibility extends beyond conversion to customer value nurturing”. This
renewed attention on sustaining long-term relations with customers by bringing
value nurturing to their experience instead of focusing on lead generation and
conversion is the prime responsibility of the subscription-based companies who
want to help customers make a smart economic decision.
1.1 Transformation of business: shift to the subscription economy
say that 2007 became a year when a new trend started spreading all over the world: that was so called “once-in-a-century transformation in the way business is transacted”. From that time on different companies have started offering an option of subscribing to services instead of just buying products. That first happened with the big companies like Amazing and Netflix, but soon other industries added such an option to their services. In PwC report (PricewaterhouseCooper, 2007) where the key findings about the current software industry environment are provided it becomes well-defined that consumer behavior has changed a lot recently and that vendors now are reevaluating their software pricing and delivery models to accommodate this change. In this research prepared nine years ago there was already noted such a trend as shifting from up-front paying to periodic payments. This trend now is considered to be the hallmark of the 21st century (Tzuo, The subscription economy: a business transformation, 2015).
It took a long time for businesses to make this shift from the product-centric pay-per-product transaction model to a model with the long-term relationships with recurring revenue happen. Experts say that this process started as a consequence of the wide spread of web 2.0 and the development of online platforms (Kaplan Andreas M. and Michael Haenlein, 2010)., in the Internet age a phenomenon of “people-to-people exchanges through technologies” appeared enabling a new kind of economy. That was a born of the sharing economy. It was a new and alternative socio-economic system where buying things was not already the only way to consume things.the research The Sharing Economy: Why People Participate in Collaborative Consumption (Hamari, J., Sjöklint, M.&Ukkonen, A, 2015) it is said that the sharing economy should be considered through the lens of information technologies since this phenomenon “emerges from a number of technological developments that have simplified sharing of both physical and nonphysical goods and services through the availability of various information systems on the Internet”.sharing economy offered entrepreneurs a wide range of business models based on the idea of availability of online platforms among which can be named such forms as collaborative consumption, wikinomics, peer-to-peer file sharing, open data, content sharing in social media, user generated content, subscriptions, crowd funding, crowdsourcing and etc. (Matofska, 2014). Later, the sharing economy term has become more specialized and the subscription based models have been allocated as a separate direction in the business landscape., subscriptions have been used for many years by some industries - for example, magazines and newspapers, mobile and internet operators, cable TV, fitness clubs, public service ad etc. But more recently, many other new kinds of unexpected industries have started participating in the subscription economy, offering diverse range of goods and services from cars to online software for a flat monthly or year fee (Lev-Ram, 2014).“subscription economy” is the term coined by Zuora, “a leading commerce, billing, and finance solution for subscription-based businesses” (Bastian, 2014). In 2007, CEO of Zuora Tien Tzuo and his partners Cheng Zou and K.V. Rao started to build and spread around fundamentals of a new business model which could be used by companies of any size. The idea was to make possible for companies to offer customers different services via subscriptions instead of making single transactions and selling separate products.noticed that markets across different industries are looking for new models of shipping products as an answer to the increased demand of clients to consume goods in a new way. A significant point of this new business model was focusing on consumers and value to them, making them a key player in this process instead of focusing on the product, or transaction, or value to the brands themselves, as it was in traditional business model. The sudden idea was to monetize long-term relationships by offering consumers flexible and personalized goods and services. Flexibility here is about allowing customers the adaptability to “either pay as they go, or pay per subscription monthly, or via a long-term contract” (Whitler, 2016). Personalization in its turn is giving individual package of service depending on the needs of a particular client., they called this new business model “the subscription economy”. Inventing this phrase helped Zuora made a buzz in the most popular business magazines such as Forbes, Wall Street Journal, Tech Crunch, Fortune, BBC, Huffpost Business. Since the year 2013, there have appeared many publications explaining what the subscription economy is and why it is important to put attention on it (to name just few of them: Zuora Lands $50M From Next World, Paul Allen, Marc Benioff & More To Help Fuel The Rise Of The Subscription Economy by Rip Empson, Tech Crunch Sep 5, 2013; The rise of The Subscription Economy by Kyle Hutzler, Huffpost Business, Jan 08, 2014; It's a subscription economy, and you're just living in it by Michal Lev-Ram, Fortune, June 6, 2014; How The Subscription Economy Is Disrupting The Traditional Business Model by Kimberly A. Whitler, Forbes, Jan 17, 2016). Subsequently, the term took a root in business environment being acknowledged by many experts as a new trend in economy.experts’ opinions which were provided in the articles and in the forums were mainly positive and supported the core idea of the subscription economy phenomenon. Robbie Kellman Baxter, author of The Membership Economy, claims: “Customers are saying, ‘I’m willing to sign up, set it and forget it in exchange for a value accrued to me on a regular basis”. He also emphasized that “It’s a massive transformation that is changing the way organizations engage with their constituents,” (Guth, 2015) which can be translated as being a revolutionary shift in economy and not just a passing trend. Another opinion leader John Warrillow, author of The Automatic Customer agrees with Baxter stating that “It’s a fundamental change in the way we think”, which he explains as being more attracted by the brands who advertise experiences, relationships and belonging rather than by usual sellers. He gives such a comparison: “It’s a little bit more like a marriage, where the consumer commits and the supplier says, ‘I’m going to look out for you, watch your back, and treat you right’” (Guth, 2015).
Talking about the perspectives and reach of this trend, the market leaders said that “The subscription economy is ever-growing. It's hard to quantify how big the subscription economy actually is, however, it's clear that this is the direction that most every service provider is headed” and that “The subscription or membership economy is huge (Judson, 2015). And good news is its growing, look at services such as Dollar Shave Club, or Dollar Beard Club, or even digital subscriptions such as Netflix, or Spotify, these are all subscription services, it’s the new way of doing business” (Taei, 2015).understand better, why a shift to the subscription economy is happening we should accept these two facts proposed in 2014 by Dave Frechette, Vice President of Worldwide Sales Strategy and Execution at Zuora (Bastian, 2014):
. It comes to stay. Companies that once have changed their business model to the subscription model rarely convert back. There is no way back from this transformation which goes through all the economy;
2. Big corporations prefer this model for being predictable. It gives them more focused and certain forecasts of their revenue and profitability.
As it was said before, the main attention in the subscription economy is focused on the consumers and their needs. In other words, there would not happen such a shift in economy if consumers would not show a tendency to desire more control and influence over their relationships with brands, vendors and service providers. The overall internet access and tremendously fast spread of mobile devices and social networks made consumers being more involved into all kind of communication processes giving them immediate answers to all their requests and demands. They got accustomed to the idea receiving everything they want “here and now” and be also able to select characteristics and conditions of usage according to their personal preferences. Saying differently, there has appeared a new type of a customer who wants brands to serve him how, where and when he wants (Sloat, 2015).
Another big change in consumer behavior which inspired this shift in economy refers to the demand for new consumption models: in the report prepared by The Economist Intelligence Unit in 2014, “80 percent of customers are demanding new consumption models including subscribing, sharing, and leasing - anything except actually buying a product outright” (Tzuo, The subscription economy: a business transformation, 2015). As Saar Gillai, Senior VP and GM at HP noticed in this report, “Consumers are getting accustomed to pay-as-you-go models, and they like that flexibility. They can instantly get all the capabilities without paying up-front for the cap-ex, and they have better control over their spend”., it is possible and obvious to conclude that the consumer behavior has changed. To sum up, here can be given the following explanations of this change provided by various experts:
) Customers today, especially youngsters, have no strong division between their business and personal interests and so they expect their business relations being more personalized. They frequently consider brands as their “friends” with whom they can always negotiate about any deal and compromise their interests;
2) Customers want to have a permanent access to an extensive library of information, ideas, solutions and specific products. The new era of information dictates a rule to be always aware of the latest updates on the market and be able to use them when, where and how you want it. Access itself becomes more significant than asset (Guth, 2015);
) Customers do not want to buy a product that can become quickly old-fashioned or dysfunctional. Instead of that, they prefer to be able to stop using a product as fast as it is not useful anymore. Such a behavior is based on a common idea of the “right now” need, which means that a product cannot be delivered later and it should come at the right moment to be “real-time experience with immediate fulfillment” (Sloat, 2015) to satisfy a spontaneous and transitory wish;
4) Choosing a solution whether for personal or business use, customers now expect to get some value in return for their choice. They believe it will save them money or make their lives easier, or, at least, will bring them fun (Janzer, 2015).
Reasons given above make brands and vendors take more care of earning customer loyalty by presenting on-going value and memorable services which were supposed to show clear understanding of customers’ demands and readiness to maintain long-term relationships with every client.sum up, many experts from the business landscape commit an idea: companies that eager to be leaders in their industries, maintaining long-term relationships with their clients and getting financial, technology, market, and customer loyalty benefits from their relations, need to plan their participation in this transformation already now.
.2 Subscription based economy model overview: characteristics and functions
we discovered the relevance of the subscription model and found out why the transformation from traditional transaction economy to subscription started to happen, it is necessary also to go deeper into exploring particular features of its elements to understand better how it works.