Benefits of the software subscription model
We've talked about why some companies have chosen to make the switch from a perpetual license to a subscription-based model, but now let's take a deeper look at five key benefits that come when you move away from perpetual licensing.
1. Flexibility to implement different revenue strategies
Although we've been treating it like a monolith, subscription pricing contains a number of different pricing strategies. You could opt for a freemium route, tiered pricing, charging by usage time, and more. With a perpetual license, all you can change is the price. But with subscription licensing, you've got a lot more flexibility to try different strategies until you find one that works best for your business.
2. Increase opportunities for customer acquisition
As we've previously discussed, Adobe, Autodesk, and others were able to take products that needed to be very costly under the perpetual license model and make them very affordable. In doing so, they were able to take their tools from the realm of something established professionals use, to something that hobbyists and indie studios could afford. Moving away from a perpetual license helped them to regain market share and ensure continued market dominance in their respective software categories. It can help you reach more customers as well.
3. Build stronger customer relationships
Rather than the massive black-box changes required under perpetual licensing, subscription pricing relies on continuous updates based on user feedback. This gives you a stronger relationship with the customer because you are responding directly to their needs rather than isolating your development team from them and hoping to anticipate those needs as you work on the next version of the product with minimal feedback.
4. Lower CAC and maximized profits
As software begins to switch from a perpetual license to the subscription model, consumers are less and less willing to spend large amounts of money upfront for perpetual licensing. In addition, someone who is curious about a product is more likely to try it if they can do so affordably. Under the subscription model, you can win (and hopefully retain) a customer simply by getting them curious about your product. If you're smart about data, you'll have all the information you need to ensure the happiness of the customer and keep them around for a long time, maximizing your profits in the process.
5. Grow with the changes of the market
By continuously responding to customer needs, both in the form of direct feedback and information gleaned from KPIs, your customers will continue to see value in your product. Rather than waiting long periods for new features and then having to pay for them, the customer will see regular improvements that keep them coming back. Under the perpetual license model, you have to hope your last release was good enough to fend off competition until the next release comes. You can't adapt dynamically to changing user expectations, and can, therefore, lose customers and miss out on growth much easier.