After nearly three decades in the data protection software business, I've seen plenty of major changes – in the technology itself, and in the way organizations acquire it.
One of the most significant developments has been how subscription-based pricing models have overtaken perpetual licensing. In my role as CEO of NovaBACKUP Corporation, it's a shift that I can view through multiple lenses: as a software vendor, a reseller of third-party software, and an end-user of Software-as-a-Service (SaaS) products.
My first job in the industry was at an anti-virus (AV) software manufacturer. The executive team wanted to increase sales, so they decided to offer "lifetime" licenses for $29.95. At first, business boomed, and we gained a huge market lead over our competitors.
However, before too long, we'd saturated the market and had already collected "lifetime" payments from all our customers, who were now demanding protection from the latest viruses. New purchases were dwindling, and our product development and technical support expenses were skyrocketing. It was no surprise that one year later the business was sold for pennies on the dollar and never heard from again. After all, what good is a lifetime AV license that can't protect you from future threats?
Now cut to Adobe, where they took a very different approach to growing the business.
In 2012, Adobe started offering its products in a SaaS distribution model and introduced subscription pricing. At the time, as a fellow software vendor and Adobe end-user, it looked to me like a crazy risk. Lowering the price of your products (by half in many cases) immediately affects revenue and cash flow. Then there was the risk that customers could leave in droves, further damaging revenue generation.
As we know, that didn't happen. Although Adobe's revenue took a small short-term hit, it recovered within three years and then continued growing. By 2016, Adobe's annual recurring revenue (ARR) topped $5 billion, and it's grown to almost four times that in the last seven years.
Today, it's rare to find perpetual licensing for software. Instead, we've witnessed the success of vendors that launched subscriptions, including Microsoft, Salesforce, Oracle, HubSpot, Atlassian, AWS, and many more.
That's great for the software manufacturers, but what about their channel partners and end-users? In fact, the benefits of subscription-based managed services extend throughout the software ecosystem.
As both a vendor and a customer of subscription services, I see the value on both the revenue and cost portions of our income statements. Like our customers, we don't "own" the solutions we use internally, but we've learned that we actually have more power with subscriptions.
The switch to subscriptions is something we’re also seeing more of in the backup industry, as more businesses choose managed backup services. Our own customers and partners find that a subscription-based managed backup service provides more long-term value than a perpetual license in many ways, including:
After working with many managed service providers that have made the move into offering Backup-as-a-Service through subscriptions, I've identified several factors that are essential for success:
Your customers aren't buying a product from you – they're subscribing to your expertise. It's important to help them understand that your expertise in selecting, setting up, monitoring, and managing their backup software improves the security and availability of their data.
For more detailed advice on how to position a managed backup service with your customers, read our white paper.
Having a standard solution set that you can support expertly and confidently will help you provide a higher standard of service and increase trust in your expertise. Better service leads to greater customer satisfaction and more word-of-mouth referrals that help grow your business.
I recommend choosing one of two approaches for pricing your services: transparent pricing or service bundles.
A transparent pricing model, with clear usage-based charges, allows for situations where some customers use more storage than others and charges each customer fairly for the capacity they use.
Bundling services (for example, by combining backup, AV, health checks, and your support into a "security bundle") makes it easier for your customers to budget and for you to increase profitability. Having a service bundle as a single line item for a regular subscription also helps shift sales conversations from price negotiations to highlighting the business value you can deliver.
Having a service bundle as a single line item for a regular subscription also helps shift sales conversations from price negotiations to highlighting the business value you can deliver.
By offering Backup-as-a-Service, you should gain access to your vendor's technical team to provide in-depth knowledge and troubleshooting guidance whenever you require it.
Your vendor should also give you access to tools and training that make it much easier to manage customer backups. Look for vendors that provide reliable, responsive support to help you deliver the best possible managed backup service for your customers.
The days of proudly displaying software boxes in your office are long gone. The pride of ownership has given way to the peace of mind that comes from predictable costs, up-to-date software, and expert support.
To learn more about how offering Backup-as-a-Service can help you boost revenue, increase customer satisfaction, and make your life simpler, read our guide, Grow Your Business with Managed Backup Services.