In the last decade, many software vendors have shifted from one-time purchase models to subscription-based models. Everyone has felt the impact, from businesses making the purchasing decisions to vendors selling products using this model.
When businesses consider purchasing office suites software, traditional license purchases are out, subscriptions are in. Microsoft, Adobe, G Suite, Slack, and many other companies have embraced this new, flexible model. IDC anticipates that by 2022, 53% of all software revenue will come from subscription-based models. Many SaaS vendors that have switched to subscription-based models have seen considerable success, but not without a few setbacks.
In this monthly series, I’ll discuss how technology and innovation impacts office technology. This deep dive into the subscription model is one of many digital trends that influences offices across all industries.
Despite initial revenue loss at the start of its SaaS transition, Adobe continues to be a textbook example of a successful subscription-based product. Alternatively, Microsoft saw signs of revenue success early on in its subscription-based model, which it continues to maintain. On G2, both Adobe and Microsoft are leaders in several office tech categories, including document creation, spreadsheets, and email. Notably, Microsoft received a G2 Leader badge in the Office Suites category in every quarter since Spring 2018 and dominated the Fall 2019 G2’s Grid® Report for Office Suites. G Suite, another office staple, is not far behind and excelled in other areas—it was No. 1 in G2’s Fall 2019 Results Index for Office Suites.
Free versions are dominating the office suites market. While subscriptions are cost-effective, free office suites are hard to pass up. Products such as LibreOffice and OpenOffice stand strong against their competitors, according to all segments of G2’s Grid® for Office Suites.
What is a subscription model & how does it impact office technology?
This model replaces a perpetual license with an upfront cost, utilizing a SaaS approach, which benefits the vendor and the customer.
A business model in which a customer pays a recurring price for unlimited access to a product or service. The recurring price is either paid over a specific period of time or indefinitely.
For businesses, choosing the right payment model depends on many factors. One is the impact it has on their bottom line. Before subscription models, businesses relied on licensing; businesses would buy a license to use the software, typically paying a high cost up front. This can be a big expense for businesses just starting out. Plus, businesses can choose to purchase a subscription for a specific set of users instead of the whole company. This encourages SaaS optimization and cost savings. After all, an entire enterprise probably doesn’t need access to a photo editing tool only five people use.
Nevertheless, the model isn’t perfect. It typically forces users to bundle several products together instead of purchasing a single product, diluting the cost-effectiveness of the SaaS product. For example, if a business knows it needs spreadsheets software for its accounting team, it will look for only spreadsheets software, not a bundle of miscellaneous products.
In many cases, businesses might not realize how useful products within a product bundle can be to their business. They might even use these products when they realize their potential. However, it’s a wasteful cost sink to purchase unnecessary products. The pay-as-you-go structure many subscription-based models use is a smaller investment than purchasing a license for an entire company. In other words, there are clear pros and cons involved with each approach, and businesses should be mindful of their needs before committing to a specific method.
One reason the subscription model succeeds is its use of cloud-based products. When comparing the pros and cons of SaaS software with on-premises software, each company should consider the needs of their business. For example, cloud-based products are safer and easier to maintain than on-premises solutions. In a world where working remotely is common, the flexibility of cloud-based products makes on-premises solutions less appealing. Cloud-based products don’t have to be installed on a local computer; they only require consistent internet access.
Businesses no longer need to purchase an updated model of a product. These days, products are updating constantly, not every once in a while. Whether there are security patches, new features, or just a routine maintenance patch, cloud-based products can seamlessly update changes without any reinstallation. Products are consistently kept safe, updated and fresh—all without much effort or time for users.
What’s next for the subscription model?
The general public is embracing to the idea of the subscription model. Whether people are accustomed to getting groceries, clothing and other retail products in the mail as a subscription box, have access to thousands of films and TV shows, or can stream millions of songs. The positive impact of the subscription model is clear. All businesses want their office to thrive with the right office products, and the subscription model is a step in the right direction for businesses of all sizes.
Tricia is a former research analyst focusing on office and design software. Tricia started at G2 in October 2018 after spending nearly five years in the competitive intelligence industry, which led to extensive market research knowledge and experience. She is currently maintaining the integrity of her space by building out new categories and writing data-driven content. Her coverage areas include office and design. In her spare time, she enjoys reading, attending concerts, and gaming.