Date:
04. August 2021
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New potential with subscription offers | Software AG

What are Software AG's goals with its subscription strategy?

Raul Moesner: Software AG is committed to helping companies evolve into digital organizations. Our mission “We connect technology and people for a smarter tomorrow” means that we focus on the users of technology, our customers. We can only achieve sustainable customer loyalty by continuously creating value through our products. At the same time, we also focus on innovation. Taken together, these represent the building blocks that determine Software AG's growth and also that of our successful subscription business.

Switching from the transactional model, i.e. the “perpetual model,” to subscription opens up entirely new potential for us. With these new options, we are in a position to reach a broader range of customers. These include medium-sized companies, for example, which were previously only covered to a limited extent by our traditional enterprise business. The lower initial investment of the subscription model compared with the purchase of continuous use rights reduces the entry hurdles for many customers, which in turn also reduces the sales effort required to conclude individual contracts.

How is the strategy being implemented today, and what are the goals for the next 12 months?

Raul Moesner: Implementing the subscription strategy as part of the overarching transformation will take us three to five years. In 2019, we started laying the groundwork, which includes processes such as getting the product offering and pricing right. In order to clearly address customers in the subscription model, we have restructured our entire product portfolio into standardized and modular product packages known as “tiers.” We are currently in the process of migrating existing customers to subscription contracts with the associated benefits, and this is being well received.

We have also laid the foundations for a scalable and customer-oriented business model at the organizational level, for example by introducing Customer Success Management (CSM). The CSM team supports customers in the use of our technology for the relevant use cases and provides an outlook on the use of further and new product features. The goal is that our customers recognize the value of our continuous product optimization, make active use of it, and thereby extend their subscriptions. The CSM teams also play a coordinating role in critical support situations.

An essential part of the transformation is the communication of our strategy to the capital market. Our investors have to be convinced of the fact that we are taking the right steps toward the new business model. To achieve this, we have introduced new strategic KPIs, such as “bookings.” These represent a standardized order intake across all deployment models over a 3-year contract term. This enables a comparable assessment of sales success, regardless of the type of contract or underlying infrastructure (SaaS or On Premise).

One of the core tasks for the next 12 months is to convert relevant systems and processes. The Sales and Marketing departments will be relevant in this regard, with greater support for the “Nurturing” process and the development of smaller deals with expansion potential. The increased scalability of the entire lead-to-cash process extends into many areas of the business.

Another focus is on fostering a corporate culture that promotes cross-functional, agile collaboration on the one hand, and on the other hand, enables the end-to-end alignment of all functions with customer orientation.

What are the most important customer responses?

Raul Moesner: We have already proven to be very successful with the transition to the subscription business model after just over a year of our transformation. For one, this is reflected in the many regular customers who have already switched to the subscription model and appreciate the benefits of more flexible contracting and scalability of product deployment. On the other hand, our target audience now includes somewhat smaller customers who have been won over by the value of the technology through lower investment or free trial periods.

All customer segments have one thing in common. They are collecting information about the various providers and available technologies on the market. We must therefore be in a position to provide online-based information about our technology and the relevant use cases even without the extensive involvement of our sales teams. This increases the relevance of generating potential customer opportunities through marketing.

What are the main challenges that need to be addressed for implementation?

Raul Moesner: The subscription business model forces the company to undergo a customer-centric transformation of its products, sales and marketing processes, as well as its corporate culture and partnerships. It therefore actually affects all areas of the company and is very complex to implement consistently.

A main prerequisite for the subscription is the modular standardization of the product portfolio, for initial test and contract models and for further upselling.

Sales processes must also be further adapted. The teams that focus on enterprise accounts continue to be relevant, especially for existing customers with a large installation base. For new customer business, we have established “Digital Sales.” The aim of these teams is to sell smaller installations at a higher volume. These basic contracts can be expanded into larger installations via usage-based pricing models. The corresponding sales process is increasingly digital, data-driven and automated to the greatest possible extent. Initial use cases must also be independently implementable in SaaS-based pilot installations.

But this also calls for our process efficiency: Processes targeted at large enterprise deals do not fit a much higher number of sales processes with smaller contract volumes. In this environment, it is not possible to scale the traditional Go2Market model.

The subscription model brings us closer to our customers. We have more intensive and frequent touchpoints and a better database. But that doesn't automatically make us more customer-centric. That only happens when we use that information to optimize our products and customer experience. This brings with it a number of challenges to the way we work and our workplace culture, with new roles, new mindsets, new instincts. This requires continuous enablement and concrete training programs.

What tips can you give other companies contemplating building subscription models?

Raul Moesner:

  1. As always with large-scale strategic change, the question of purpose is a critical one:
    To what extent should the subscription strategy be pursued and what role does it play in the overall business strategy? Overall, the software industry is already much further advanced in this transition than the mechanical engineering sector. And yet the maturity of the new business model at Software AG requires a comprehensive transformation program. An introduction for individual product areas may be sensible in industries where this transformation is not yet so far advanced. For this “section” of the company, however, a consistent introduction of the subscription model should be pursued, including offering, go-to-market, scalable process and system landscape, etc.
  2. The subscription model must be customer-centric:
    What benefits does the customer gain from this strategy, how does it make them more competitive and innovative? Is this customer benefit coherent enough that I can communicate it to customers in a simple and convincing way?
  3. The workforce needs to be taken on board with the transformation:
    Employees should be well informed but also trained. The goals of the transformation must be transparent and relatable to their own tasks, otherwise a lot of friction loss is to be expected here.
  4. When it comes to customer orientation, the focus on innovation is also crucial, of course: 
    Without a comprehensible promise that the subscribed products are subject to regular improvement, a subscription model makes little sense for the customer.

 

 


Dear Mr. Moesner, thank you very much for the interview.




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