Subscription management solutions provider Paddle acquired ProfitWelllast week, intending to "automate payments infrastructure for SaaS companies." This marks the third significant merger and acquisition (M&A) in the past six months. In January, Chargebee acquired Brightback, a customer retention software provider for software as a service (SaaS). Then, in April, Chargify and SaaSOptics merged to create Maxio, a subscription and revenue management solutions provider.
Consolidations can have both a positive and negative impact on a market. While it’s positive that vendors are working together to better support customers, the drawback is that buyers have fewer options to choose from. Let’s examine how these M&As may impact the subscription management software market.
The subscription management software market is shrinking
Subscription management software started as a single solution to cover all the needs of SaaS companies. However, with increasing competition and specialized new products appearing, the subscription management market is getting more complicated, and two main reasons are driving it.
First, tens of thousands of SaaS products make the competition fierce and harm retention. For instance, many products in categories such as Project Management offer similar features, making it difficult for sellers to convince customers that their product is the best option. Also, software subscriptions don't always require long-term commitments, and buyers can cancel them easily.
Second, buyers are looking closer at their SaaS spending to see if they need or can afford all the cloud tools they use. This is made more accessible by SaaS spend management software, which helps buyers track all their subscriptions, similar to tracking all your streaming services like Netflix, Hulu, Amazon Prime, etc. If you list all of these and other subscriptions you may pay for, like music, gaming, or meal kits, you'll probably realize that you don't need them.
Competition has also increased in the subscription management market, and some vendors realized they needed to work together to remain competitive in a challenging market. Also, more specialized products were recently developed, focusing on specific business needs such as revenue management and subscription analytics, complementary to subscription management software.
Why did Paddle acquire ProfitWell?
With the ProfitWell acquisition, Paddle will have better features for financial analysis, revenue management, and pricing optimization. The deal also gives the company access to ProfitWell’s 30,000 customers, including major companies such as Canva and Autodesk.
ProfitWell focuses on subscription growth, which is difficult to achieve when buyers wonder whether they want to keep purchasing from a vendor or not. Their website mentions that ProfitWell provides "reporting and analytics to help you understand where you're great and where you're not." While it's important to know what works, it's critical to understand what doesn't.
Knowing where you're not great can help you prevent losing customers. Sellers cannot afford to wait for the customer to decide, which is difficult to reverse. Being proactive is more efficient because it shows customers that you understand their concerns and are willing to work with them to find a solution.
These M&As have impacted 5 of the top 10 products in G2’s Subscription Management category, representing a significant market shift. We expect only three products will remain after a slate of M&As are closed.
Focus on customer retention will continue
These are challenging times for tech companies as many have had to freeze hiring and spending or lay off employees. However, software sellers must be proactive and know their customers to remain competitive. As a result, we expect to see more vendor focus on retention, either by developing new features for loyalty or through M&As.
Gabriel’s background includes more than 15 years of experience in all aspects of business software selection and implementation. His research work has involved detailed functional analyses of software vendors from various areas such as ERP, CRM, and HCM. Gheorghiu holds a Bachelor of Arts in business administration from the Academy of Economic Studies in Bucharest (Romania), and a master's degree in territorial project management from Université Paris XII Val de Marne (France).