Exploring the Cloud Computing (CC) commercial landscape as it matures; this book asserts that the key ingredient in sustaining the Software as a Service (SaaS) business model is subscription renewal. Chronicling the evolution and future trajectory of the CC concept, the authors examine the new paradigm it is creating for the distribution of computer software applications among business-to-business (B2B) clients. CC enabled SaaS has been fundamentally changing the revenue expectations and business model for the application software industry, and impacting on how SaaS providers pursue, acquire and retain B2B clients. Securing SaaS subscription renewal is critical to the survival and prosperity of this business as attrition can have a significant impact on the financial viability of SaaS businesses based on this model. Focusing on the B2B client and the SaaS industry dependency on renewal subscriptions delivered through the CC channel, the primary research presented in this book seeksto examine the key drivers behind the B2B SaaS subscription renewal decision and, in doing so, to explore the recurring revenue framework for the Cloud SaaS business.
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Industry Trends in Cloud Computing
Alternative Business-to-Business Revenue Models
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eBook - ePub
Industry Trends in Cloud Computing
Alternative Business-to-Business Revenue Models
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© The Author(s) 2018
David Dempsey and Felicity KelliherIndustry Trends in Cloud Computinghttps://doi.org/10.1007/978-3-319-63994-9_11. Introduction
David Dempsey1 and Felicity Kelliher2
(1)
Salesforce, Dublin, Ireland
(2)
Business School, Waterford Institute of Technology Business School, Waterford, Ireland
Cloud Computing (CC) has created a new paradigm for the distribution of computer software applications and service (Skilton and Director 2010). It offers a model for delivering ubiquitous, on-demand access to a shared pool of computing resources, which can be rapidly provisioned, released and consumed with minimal management effort or service provider interaction. In parallel with this technical paradigm shift, software licencing and hosted delivery models have emerged in recent years wherein software is now licenced on a subscription , or rental, basis. In this new licencing world, revenue now typically flows into the industry on a subscription basis after the delivery of the application service. This approach counters the traditional or classic software licence model where an upfront and ‘in advance’ software payment was the industry norm (Osterwalder and Yves 2010).
The implications of this change for the traditional software industry are very significant (Meeker et al. 2010). Altering how software purchasers acquire and fund their software licences means that many existing industry incumbents will be faced with Christensen’s (2013) classic dilemma in their need to innovate quickly while facing massive disruption to their existing revenue stream. For the software end user it also delivers a new democratisation whereby the levels of software application functionality previously only offered on a perpetual licence basis, at a price point beyond the reach of most Small and Medium Enterprises (SMEs), are now made available on a ‘pay as consumed’ time rental basis, affordable by all (Seethamraju 2015). As Armbrust et al. (2010) rightly point out, this means that the business advantage these software applications can give now becomes available to all, rather than being restricted to those businesses with the biggest budgets.
Within this new service paradigm CC enabled software as a service (SaaS) has fundamentally changed the revenue expectations and business model for the application software industry. While defined in different ways, The Economist summarises SaaS as:
The delivery of software as an Internet-based service via a web browser, rather than as a product that must be purchased, installed and maintained. (The Economist 20 Apr 2006)
Instead of the industry’s old expectation of once-off, perpetual and upfront licence fees, this new software licencing model now brings a renewable revenue stream directly to the software industry (Marston et al. 2011). Specifically, SaaS ‘focuses on separating the possession and ownership of software from its use’ (Turner et al. 2003), such that consumption and usage are the arbitrators of value perceived and price paid. In this new world, revenue protection, or securing the SaaS subscription renewal fee, is critical to the survival and prosperity of the Cloud SaaS business. Any significant attrition , that is, cancellation or reduction of the service by a subscriber, can have an equally significant impact on the financial viability of the service provider based on this revenue model (Burez and van den Poel 2007; Khajvand and Mohammad 2011), a reality that the CC industry suppliers ignore at their peril.
Cloud Computing has created a new paradigm for the distribution of computer software applications among business-to-business (B2B) clients and impacts on how Cloud service providers pursue, acquire and retain B2B clients. The research documented in this book considers the revenue expectation of the SaaS B2B CC industry and its necessary dependency on renewal subscriptions (Li et al. 2017; Skilton and Director 2010; Turner et al. 2003). Specifically, the recorded study focuses on the revenue attrition risks inherent in the B2B SaaS business model (Fader and Hardie 2007). This is one of the first academic research projects to look at the commercial, rather than the technical, drivers of a world-class CC business. In doing so it creates a focus on the robustness and resilience of the CC SaaS business model and, in particular, those factors which can impact the sustainability of the industry’s recurring revenue subscription model.
This repeatable revenue dependency is both a strength and a weakness (Ma and Seidmann 2008) to a new marketplace , which in itself is a disintermediation threat (Christensen 2013) to the classic software industry revenue model on which the industry was founded (Osterwalder and Yves 2010). Influenced by this dilemma, our underlying goals are to identify the unique objectives and characteristics which influence the SaaS subscription renewal decision (Burez and van den Poel 2007) while also considering the subjective influences which inform that decision.
Because of the expected growth and attraction of the CC market (Li et al. 2017; Meeker et al. 2010), there is much interest and aspiration among providers to be part of its growth trajectory. As such, the practical outputs from this book are likely to find easy access to implementation across industry aspirants worldwide, particularly those focused on long-term sustainability. While we believe the research findings exhibited in this book offer a universal revenue protection framework, it is not the silver bullet which will guarantee long-term success for all and we caution that its applicability be measured for its appropriateness to every industry incumbent and aspirant.
The company data and industry insight provided within this text has been earned not only through a long apprenticeship within the industry on the part of one of the authors but also through both editors being present in the commercial computer and CC industries when in their infancy. The growth of Cloud Computing has been phenomenal and fast—so too will its emergent data points be produced and morph at an equally furious pace. Sometimes, the pace of academic research and publication fails to keep pace with the industry it examines so this text seeks to make the latest industry experience available as a set of guiding principles for those CC subscription service providers seeking to build long-term, sustainable revenue streams. In doing so, it is not a substitute for customer focus tactics and we strongly advise that any industry aspirant must also pay close attention to this customer focus in parallel with any pure revenue protection goals.
In this book, we explore the notion of a democratisation of both the software distribution and consumption worlds. Using the historical evidence of subscription users as a conceptual lens, we set out to build a model which supports the delivery and consumption of application SaaS rather than as a traditional business asset. This approach enables us to explore the world beyond that of the traditional software vendor to a new place where software is consumed democratically through the use of online access and interactions....
Table of contents
- Cover
- Frontmatter
- 1. Introduction
- 2. Cloud Computing
- 3. Cloud Computing: The Emergence of the 5th Utility
- 4. Revenue Models and Pricing Strategies in the B2B SaaS Market
- 5. Business-to-Business Client Relationships in the Cloud Computing Software as a Service Realm
- 6. Recurring Revenue Model Through a Cloud Computing Channel
- 7. B2B Cloud Computing Software as a Service Revenue Model
- 8. Recurring Revenue Model in Practice
- 9. Recurring Revenue Model, Recommendations and Next Steps
- Backmatter
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