Making the transition to a subscription-based business model in the context of a B2B software company

Abstract

This master thesis aims to provide a guide for B2B oriented software companies on how to embark on the subscription journey. The subscription model itself brings a very different perspective on how to make business –it starts with different ways of engaging with the customer and a lot more customer care after the deal was made. To achieve this the business must readjust and align itself to the customers to be able to retain them. All this comes with the promise of increasing recurring revenue that should be more predictable and should outgrow the perpetual sales over time. Drastically changing the business revenue model is not an easy thing, especially when the company doing it has a lot of existing customers that are used to the old model. Convincing the customers that this pricing model is meaningful and keeping them is a key challenge that must be overcome. There is also the internal, or in some case the owners’ resistance, especially when the company is public. It is expected that the company will have to coupe with revenue cuts, as even if the sales rate is increasing as the money will be claimed overtime. The salesforce might also be heavily reorganized, as their incentives are naturally related to the deal size. The research of the topic will combine an analysis of documented case studies and internal views of B2B software vendors that are currently making the transitions to a subscription business model. This approach will help validate some of the theoretical hypotheses and reveal hidden risks in the transition. It will also focus in detail on how an R&D department in such a company will readjust itself to meet the new model’s requirements. The thesis provides a generic description of what it means for a b2b company to switch to a subscription-based revenue model along with many listed impediments and a set of examples of how to mitigate those. It may serve as a pragmatic yet systemic guide on how to trigger such a serious business model change.