Today, even the largest of enterprises in both the private and public sectors are adopting subscription, or recurring revenue business models, an approach once largely relegated to the sale of insurance, music, movies and a few other limited items online.
In recent weeks, we saw many Fortune 1000 businesses and other entities adopting this approach as a way to tap new customers and expand sales, not to mention smooth out revenue flow.
Target stores, for example, recently announced that it is using subscriptions to sell and deliver baby supplies to new moms and dads. Toyota Motors announced in recent weeks it is going to sell annual subscriptions for its onboard navigation services in Europe. In the public sector, the North Carolina Lottery announced in late September that it is offering subscriptions to increase participation in select lottery games.
The fact that these large-scale enterprises are adding subscription models to their businesses comes as no surprise to those of us who have labored in this industry. But adopting the model is not without challenges for many companies.
Aria Systems recently commissioned survey firm Gatepoint Research to look at the phenomenon, and ask executives and managers about the many hurdles involved in adding recurring billing to their legacy systems.
The study, conducted by email, included results from a poll of 103 high-level executives, mostly those employed in product, operations and finance functions. Forty-five percent hold the title of manager, 51 percent are directors, and 4 percent are vice presidents or C-level executives.
Of the businesses represented by the survey participants, 72 percent have annual revenues of less than $250 million; 8 percent between $250 and $500 million; 10 percent between $500 million and $1.5 billion; and 10 percent greater than $1.5 billion.
The responses were interesting, to say the least:
- 42 percent of respondents said they use homegrown billing systems in their organizations. Of those, 40 percent expressed low levels of satisfaction with their system.
- 34 percent manage more than 10,000 subscribers or customers.
- 67 percent are using a flat subscription model.
- Most respondents said they manage their recurring billing systems in house—through their finance or information technology (IT) departments.
- They said they most valued tiered usage models (52 percent), a flexible product catalog (47 percent) and channel/reseller management (43 percent).
- 80 percent said they use, or plan to use, software-as-a-service (SaaS) or cloud-based billing services, while 31 percent said they considered themselves “mature users” of SaaS.
- Of those who have not yet moved to the cloud, 35 percent report being unhappy with their current solution.
But perhaps the most significant question in the survey was whether or not responding executives are satisfied with their existing recurring revenue billing functions:
- Only 75 percent of respondents answered the question.
- 25 percent answered not applicable (N/A) or declined to answer.
- 42 percent said they were in the “satisfied” to “very satisfied” range.
- 25 percent were non-committal, giving a rating of three on a scale of one to five.
- 8 percent rated their satisfaction level at a one or two rating on a scale of one to five.
Now, my mom always taught me that if you can’t say something nice, it’s better not to say anything at all. I have to wonder if the same principle is in play here, too. Rather than outing their existing solution as less than desirable, respondents chose to say nothing at all. I don’t know how else to account for the non-response from a quarter of the participants.
Beyond that issue, I see three important findings in this survey.
If you assume that more than half of respondents aren’t satisfied with their current solutions, and half are either moving or looking to move some or all of their billing to the cloud, then factor in data from earlier surveys indicating that more than 43 percent of companies already have recurring revenue streams, we can see that the data paints a rosy picture for the future of the cloud billing industry.