The new economy of subscription software

Before SaaS, enterprise software developers could focus on what they do best – developing great software that answered the business challenges in their target market. There was a purchase price for the CD download, plus periodic updates offered wholesale to all purchasers. It was a one-size fits all model for a mass marketplace, with simple price and volume economics.

In today’s online marketplace, SaaS has shifted software vendors (ISVs) onto a new model based on subscriptions accrued from customers over a longer period of time. Software developers may know how to make great software, but it is a different challenge to make it a commercial success in this environment.

It is much simpler to expand distribution of a cloud-based service than a physical product, and also more straightforward to connect vendors with customers to deliver maintenance and customisation that meets demands. But therein lies the big challenge for ISVs in the new economy, which has both highlighted and inflated the burden of application integration in the overall cost of customer acquisition.

A game without winners

With a growing number of SaaS applications being deployed in organisations across all industries, ISVs are expected to make sure their product not only works, but also works well with other applications to create a fully integrated platform. The 2019 Okta report confirms that companies the world over are increasingly selecting technologies that ‘prioritise interoperability, automation and offer a broad range of functionality.’

When this is the case for each and every customer, the software vendor is forced to make a series of decisions. They need to consider which customers they make the product available to – a few big fish or many little fish? They also need to decide how they spend limited time and resources; is it meeting the afore mentioned customer ‘interoperability’ needs or focusing on developing their core product?

It is a game without winners. Whichever path they choose, they’ll lose by either disappointing existing customers or spending time on these customers’ demands at the expense of acquiring new ones and improving the core offering.

Allowing software developers to focus on their core skill set by employing specialist integrators adds an expensive and time-consuming layer to the process of software development. On the other hand, embedding integration – however it is achieved – has the potential to augment the value of the software to enterprise customers and be reflected in the price that they are willing to pay.

The knock-on impact on commercial viability of the software after all of this is taken into account can affect how – or even whether – the product is brought to market, and further influence which customers are targeted for sales.

Creating a sticky situation

With rise of the integrated enterprise and the Internet of Things, time and money spent on integrating APIs for each individual customer can easily spiral, particularly as the architecture evolves over an extended period of a subscription contract. Furthermore, the task of supporting all these different versions into the future becomes onerous, with the potential of making the software’s business model untenable.

Our own conversations with ISVs have highlighted loud and clear that this is a critical dilemma. While the old purchase model could deliver a cost-plus return per customer unit, subscription models are less able to guarantee the same return.

As a result, SaaS companies are searching for ways to make their product ‘stickier’ with customers, decreasing customer churn to secure more revenue over an extended period, and reducing the burden of integration with an ever-growing range of applications.

An integration platform as a service (iPaaS) allows software vendors to achieve exactly that. By building universal integration capability into their own application, ISVs can offer a new kind of one-size fits all model for the subscription economy. At the same time, without the need to employ specialist integration capabilities within their business, the software vendors can save on development costs and still deliver the most comprehensive, premium value product possible.

Software developers can integrate a white-labelled iPaaS solution into their own software that provides complete interoperability with any existing architecture, as well as any applications that may be added in the future. In this way, ISVs can focus on what they do best and spend less time on the maintenance and integration of an increasingly complex portfolio of customers.

The lose-lose situation can be flipped to a win-win for ISVs with a simple, effective solution to subscription economics.