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Evolving Software Business Models Require New Approaches to Customer Relationships

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Click to learn more about author Nicole Segerer

Any healthy relationship requires attention. It relies on thoughtful interactions, openness, and ongoing care. This is also true about the relationship between a software supplier and its customers. When a supplier tends to its relationship with a customer effectively, the chances for long-term success grow.

An all-encompassing view of the customer relationship can bolster customer satisfaction, help develop new markets and create revenue. Within the realm of software monetization, this holistic approach is supported by flexible licensing models that provide transparency about usage and that proactively anticipate (and meet) each customer’s needs. Vendors who continuously prove value will be situated for ongoing partnerships. To grow your business by delivering more value to your customers, consider the following:

Acknowledge the Models that Require Higher Customer Engagement

Trends indicate that software suppliers are moving to models that require new levels of customer engagement. Subscription and usage-based models demand a consistent, persistent level of engagement—more than was customary with perpetual license models. The December 2019 Flexera Monetization Monitor: Monetization and the Customer Relationship industry report found that 31% of respondents currently use subscriptions for more than half of their licensing; 25% currently use usage-based models for more than half of their licensing. Looking at the next two years, 48% plan to increase subscription and 43% expect to increase usage models. Suppliers that choose to focus on the customer relationship can demonstrate how flexible these models are and how well they can support a customer’s goals (through varied pricing options that directly align with the consumption and the value the customer derives).

Among IoT/device companies (as distinct from software companies), trends indicate that the next two years will bring a strong jump in services revenue. In addition to the subscription itself, end users are seeking after-sales customization and consulting services. The required consulting and data collection move the relationship to something more than a typical sales transaction, creating additional opportunities for the software supplier to focus on engagement.

Some suppliers (particularly those with a legacy of on-premises, perpetually-licensed software) may be hesitant by the perceived risk that comes with the shift to new models. To keep pace and to adapt to the resulting change of culture, vendors must focus on the uninterrupted delivery of real, tangible value in products that drive business success. Also, suppliers of on-premises software often fail to understand the use of their products, relying on single customer feedback rather than structured, data-driven usage analytics that would help them align their products with customer needs. This strategy is possible when the right tactics, processes, and systems are in place and can ease supplier/customer interactions.

Facilitate Transparency

Today’s customers want insights and transparency into the technology they’re using, whether in their private or professional lives. They’re accustomed to and want a single meter that displays how much they are entitled to use, actual usage, and usage trends. Some customers (20%) currently have full transparency into their usage, but a much larger group (48%) wants usage/utilization data.

Factors such as usage data, license entitlement information, expiration warnings (i.e., 30, 60, or 90 days in advance), sign-ons, and current lists of licensed users or devices are among the elements that contribute to transparency about the benefits of new monetization models. Clear, open communication about these metrics facilitates transparency with customers.

Some vendors still use audits, the expensive processes that evaluate customer usage to look for lost revenue. Often, customers were left in the dark about usage, then subjected to a lengthy audit and its perhaps surprising results—a threat to a healthy relationship. Subscription and usage-based models help eliminate the audit process., adding transparency to the model and removing a stress point from supplier/customer interactions. Pricing meters that measure usage are one type of control mechanism that can aid in this measurement. Automated enforcement can also help the provider gather accurate data.

Suppliers can implement automation that reduces their costs and increasing efficiency, while also simplifying purchasing and updates for customers. Such processes include auto-upgrade capabilities for customers eligible for software renewals; auto-update capabilities for devices that are only intermittently connected to the internet; or the automated ability to auto-provision features to devices or users if users order premium features. As part of a comprehensive move toward transparency, suppliers can also take steps to monitor unintentional overuse—such as unauthorized sharing of login credentials or the cloning of virtual machines—that can lead to revenue leakage.

Software suppliers that embrace subscription- and usage-based monetization models; prioritize engagement, and provide transparency will support healthy long-term relationships with both existing and prospective customers. Software suppliers who have a single system of record for customer entitlements and usage and who incorporate a customer portal that gives customers the insights and services they need will be positioned for growth. These resources will help suppliers understand usage patterns and product adoption as they continue their software monetization program.

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