We have seen years of booming software industry, it hit a critical inflection point and moved closer to being an on demand service. For a number of investors this change in the software business model has lead to deep consequences, leaving very little place for Normal Valuation metrics.

With changing times the subscription model has changed from more traditional model to contemporary one.
The perpetual model of subscription allows customers to pay big upfront fee for the right to use software forever, with software companies.

One of the best examples for this subscription model is iForem, a new File Management vault that guarantees lifelong file retention.

To read more on this visit: http://blog.iforem.com/corporate/2007/09/ rel=”nofollow”

By contrast, under a subscription model customers pay a lower subscription fee to essentially rent the software over a set period of time and receive upgrades or enhancements as often as every day.

Subscription models are changing their rules today

Websites offering a limited amount of content, access to website to non subscribers, reveals the growing changes connected to the subscription-based online model.

While a lot of companies opened their content free as well, they also keep a part of it fee based. Moreover their archives are usually paid as they carry built in research audience that don’t mind paying for the archived content.

They have also started opening their content at the same time while maintaining their subscription model, as they look to target the higher end business users who are more willing to pay for their content.

Giving people an access over some content and then asking them to subscribe for the rest, subscription models have changed the manner a lot of websites function today.

A fine example of a company who changed their subscription model is FT.com. They did the same in favour of a new Hybrid structure that allowed people 30 views per month. This should mean that light users of the site will be able to access what they want, as well as allowing bloggers and news aggregation sites to link to the FT’s content.
If it works, the FT may have found a way to boost its traffic and income from online advertising, while still retaining its income from subscribers.

Advantages of Perpetual & Monthly based subscription models

Online business today follow either of two different subscription models, either they can sell a product or a service that the users pays for upfront, or they sell a service that acquires an ongoing fee. In some cases, they can even combine the two models to function properly. Let us examine the advantages and disadvantages of both.

For a company, the advantage of the subscription service model is obvious; it is a constant, more predictable revenue stream. The vendor has no guarantee that businesses or individuals will upgrade their software as soon as a new version appears; many just keep on using the old product as long as it meets their needs. If they’re tied into a subscription model, they must pay the yearly fee to keep using the software.

There are advantages for the customers, as well, although they depend on how the service is implemented. If, rather than paying $500 for a perpetual software license and then paying an upgrade fee of $300 every couple of years when a new version comes out, you could instead pay $150 per year for a subscription, your overall expenditure and your initial outlay would be lower. And, as for the vendor, the cost is more predictable and thus easier to work into the budget.

As most of the other online storage services charge monthly subscription, some carry pay once mode of payment. So convenient for people as they don’t have to bother about their data if they miss paying their monthly subscription fee online. The data is retained life long and forever.

A lot of people might think that subscription model is simply a defensive growth by software industry, but I think it is sustainable for a reason and that is it matches the pricing with economic benefit
I could never make out any sense in a company paying million upfront in search of gains. A perpetual subscription model makes more sense here as it helps create a lock with customers for longer period.

Lets take a look at the one of the worlds best companies adopting new subscription models for their Dynamics.

Microsoft Dynamics AX, Microsoft Dynamics GP, Microsoft Dynamics NAV, Microsoft Dynamics SL and Microsoft Dynamics CRM are available under a Subscription Licensing Model, Services Provider License Agreement. Today Microsoft certified service providers and Microsoft partners can deliver hosted and subscription-based Microsoft Dynamics applications to their customers.

To read more on this visit: http://www.microsoft.com/dynamics/partners/hosting.mspx rel=”nofollow”

Future of subscription models

Whether the software is on-demand or on-premise, i believe the subscription model will become the dominant form of selling software over the next ten years. And in the coming few years perpetual subscription model might occupy less than half of the software industry’s total revenue.

I believe the subscription revenue model is a positive innovation for the industry. However, i do not believe it is wholly revolutionary, nor do I think is it a model that is immune from execution risk. The fact is that no matter what a company is selling, the first and foremost reason a customer buys the product is because it does something of value.

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The Future of Subscription Models
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