CEO Monetization Playbook…Strategy #3: Launching New Flexible Consumption Offerings and Running a Hybrid Business Model

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Monetizing new services is a critical piece of software digital transformation. Here we dig into the third of the multi-prong strategies for monetizing new services: Launching Flexible Consumption Offerings and Running a Hybrid Business Model.

If you missed it, you can catch up on the first strategy—Repackage to Recurring Revenue and Flexible Consumption Models—and the second: Product-as-a-Service.

Summary

Businesses today are increasingly under pressure to monetize their offerings, through products, services, and subscriptions. A hybrid business model is a combination of both fixed models and usage-based ones. It involves continuing to employ traditional pricing strategies (perpetual licenses) while at the same time tapping into a flexible consumption model.

The idea behind this hybrid model strategy is to start small and then evolve: companies launch new recurring revenue model offerings while maintaining core offerings as fixed models. These new offerings are then managed as separate business units from core legacy products, but enable opportunities for upsell and cross sell between hybrid lines of business.

Customer examples: NetApp, VMware, Symantec, MicroFocus, Qlik

“Not every company can jump feet first into flexible consumption—commercial intensity does not equate to product readiness.” Deloitte Flashpoint Edition 17 on Flexible Consumption Operating Models

Typical Use Cases

  • Software-as-a-Service + Perpetual license + Support streams
  • Device-as-a-Service (IoT) + Device
  • Data-as-a-Service
  • Network-as-a-Service + Network Device

Pros

  • Tap into new revenue streams
  • Experiment with subscription models with mitigated risk/disruption to the organization
  • Cross sell and upsell existing customers with new monetizations models
  • Legacy product revenue streams are protected—which means that companies can avoid taking a massive dip in their revenues while making the shift to subscriptions
  • Less volatility to cash flow
  • Evolving go-to-market provides a great competitive advantage
  • Greater customer satisfaction as consumers have increased control over their subscriber experience and greater perceived value of your offerings (i.e. they are getting and paying for exactly what they want)

Cons

  • Launching a new offering has its own complexities in terms of people, processes, and technology
  • Potential lack of total organizational buy-in to this “side project”
  • Initial investment can be heavier with lower typical ROI due to small volume
  • Greater complexity is built into your business management processes, e.g. billing, invoicing, and collections
  • More challenging to create a seamless experience for your subscribers, especially with traditional systems that are built to support one-time sales, not recurring revenue

Customer Story

Qlik is a great example of a customer who, although focused on a subscription-first strategy, realizes that they need to keep the lights on.

With over 2500 employees and over 40,000 customers in over 100 countries, Qlik is re-inventing itself to become the leading self-service Business Intelligence platform acquired on a subscription basis. To do so, their business and IT teams need to support new and traditional ways of going to market. They want to enable innovation so as to serve value-add services in a way that their savvier customer base wants to consume: subscriptions and flexible and usage-based consumption methods.

With Zuora, Qlik was able to enable their sales team to go to market in a hybrid business model. And they are empowered to focus on evolving their business model in the shift to subscriptions.

Bottomline

If you develop the right product for subscription monetization, this “dipping-your-toes-in” approach is a great way to experiment with subscription models without disrupting existing operations. Businesses can slowly evolve and transition their customer base to subscription models without a disruptive “big bang.” This hybrid model is a win win in that it provides stability while building a subscription foundation on which a company can expand.

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