The Subscription Economy is fundamentally changing customer purchase behavior — it is teaching customers to only pay for what they actually consume. The popular per-user-per-month subscription model used by software as a service (SaaS) is only a first step. The true realization of utility computing as a revenue model is still on the way, and the providers that understand monetizing usage are the ones that will thrive. We are still in the early stages of the Subscription Economy. Many products from information and media to SaaS are being sold on a per-user-per-month model that create revenue with or without product usage. In B2B SaaS subscriptions, Gartner continues to warn of shelfware-as-a-service. A startup called Applango claims 30% of subscriptions are […]
Archive | Usage Data
Mind the Gap: Avoiding Revenue Pitfalls in the Subscription Economy
In the book “Consumption Economics,” the authors describe a phenomenon called the “consumption gap” which is essentially the difference between a product’s capability and what a customer actually uses. The authors point out that this consumption gap will be a catalyst for technology business failures in the Subscription Economy. But how does a company know if they have a consumption gap? How do they quantify it? And how do they avoid revenue churn because of the gap? Step 1: Measure the Gap To evaluate if you have a consumption gap, you need to measure and quantify it. That means you need to take inventory on your product’s capabilities and how much a particular customer uses them. For offering, the most […]
The New Discipline in the Subscription Economy: Recurring Revenue Management
If you’re a subscription business, the most dramatic effects of trends like cloud computing and mobile won’t be felt in your company’s product line. The real disruption will be to your revenue model. Customers will not pay to own your products. Instead, they expect to pay for the value they receive by using your products. Revenue management is the common approach to solving that challenge of optimizing the revenue model. Unfortunately, the rules of subscription models render traditional revenue management ineffective. To manage revenue and profits in this case, companies need a new revenue management process to optimize the revenue model. What is revenue management? Revenue management is common practice in the distribution-centric Transaction Economy. The goal is to maximize revenue […]
How Usage Data Drives Revenue Growth in the Subscription Economy
The “Use It or Lose It” dynamic in the Subscription Economy means that if your customers don’t use your service, you’ll lose the customer, the renewal and the revenue. The relationship between subscriptions and usage illustrates this dynamic well. If a customer’s usage meets specific thresholds, the subscription revenues are retained at renewal. If usage climbs enough, subscription revenue growth can be generated by a new subscription tier or more seats. Similarly, customers with the most usage tend to expand their subscriptions to more complementary products. On the other hand, if a customer’s usage drops below certain thresholds, the first thing that occurs is tier or seat churn, which reduces subscription revenue. Ultimately, continued drops in usage lead to product churn […]