Owing to the ever-increasing demand for computing resources alongside uncertainty in demand has led to the evolution of Cloud business. In a typical cloud business model, a company will be able to offer its services, where customers need not pay a large amount of money at the time of entering the contract and continue to use the same in a “pay-as-you-go” mode which is a variant of typical subscription model. This led to a paradigm shift from the Capex model to the Opex model.
As a consequence, cloud service providers had to optimize their pricing offers and charging models while keeping the revenue flow alive. In that context, subscription based billing was adopted widely by cloud service providers due to the following reasons:
- The subscription model allowed continuous flow of revenue for service providers, while cloud service providers and users saw this as an opportunity to move from the Capex model to Opex model of spending.
- Subscription model always helps service providers to monetize their value added services in a better way. The standard package offered will only be having the basic services and any other service on top of it can be offered at a different cost.
- Complexities in price plans will be much less and hence basic systems are enough for managing and promoting the same.
- Subscription appeals to larger set of companies, as many of them will be ready to pay a fraction of the price for an enterprise grade solution, which is generally outside of one’s budget. Cloud business models boast of bringing enterprise grade solutions to SMEs and at the same time give the flexibility to large enterprises to expand rapidly..
- It is obvious that convincing customers to pay a fractional amount for the service is easier than making them pay a large amount of money; subscription billing makes this possible. Thus, customer acquisition process is fast; as a result, service providers can break-even with ease. At the same time, cloud users have the ability to move from one service provider to another without any loss.
- Management of the services is also handled by the solution providers. This helps the service providers in handling their business effectively without spending time on day-to-day operational activities
Subscription’s inherent nature of flexibility to suit the needs of any business process also poses many challenges to service providers.
Subscription Model – Key Challenges:
Billing Cost: Cost incurred towards billing steeply increases with increase in customer base. This is one of the primary concerns of service providers who adopt the Subscription business model, as the cost is directly proportional to the complexity of business process.
Increases Efforts: Efforts required to bill in a subscription driven business is a daunting task if carried out manually, and this leads to revenue leakages due to human errors and delayed billing.
Usage based billing: This is not supported by many billing systems, which restricts the flexibility with which service providers can address the needs of their customers. This directly affects the bottom line of the business.
Revenue leakages: Revenue Leakages like delayed billing and human errors in billing can affect business both directly and indirectly. Irregularities and errors in billing can affect customer satisfaction levels, which is bad for Cloud businesses where recurring revenue is important.
Customer retention: This is one of the major challenges, as the service provider should handle the business complexity raised as part of subscription upgrade, downgrade, provisioning new services and subscription renewals and bill the customer accordingly. On should be mindful of the fact that the user has an option to move to competition at any point in time.