Strategies for Optimizing Recurring Revenue Models in the Software Industry

The proliferation of 3rd Platform solutions is rapidly disrupting software business models, resulting in an increase in new software business models. Various subscription models are now growing much faster than traditional license models. IDC expects to see more adoption of consumption-based models including pay per use and subscription plus usage approaches that scale up or down according to actual utilization of resources, and as this progresses, SaaS delivery will significantly outpace traditional software product delivery. However, the transition to subscription will not necessarily be an easy one. The current software industry shift from up-front, inflexible license contracts to subscription, consumption-based models is shining a spotlight on the shortcomings of systems that were designed around the way that the software business ran 20 years ago. Software companies are evaluating whether the systems that support their business will be up to the challenge of subscription licensing or consumption-based pricing models. In addition, the lack of systems that support usage-based pricing models for the purposes of real-time assessment and billing represents a major barrier to the adoption of usage-based pricing. There is a clear need in the software industry for commerce, ERP, and billing solutions that will help support the dynamic business of software. This Technology Spotlight examines these trends and the role that NetSuite’s cloud-based business software plays in this strategic market.