One of the clearest case studies for a successful transition to subscription models is Adobe, which has achieved tremendous growth over the past five years due largely to the company's move to the cloud. According to McKinsey, "Its stock price has more than tripled, overall revenue growth has climbed from the single digits five years ago to the double digits today, and recurring revenue has climbed from 19 percent in 2011 to 70 percent of total revenue today."
Key to Adobe's success was the company's willingness to assess each piece of its business and consider how it needed to change to support the new model. Vice President of Business Operations and Strategy, Dan Cohen, explained that: "Moving to the cloud affected how we engineered the products, our operations, and our go-to-market and business models."
Many companies are making the change from annual or perpetual license models to monthly subscription models, and it's true, this transition uproots every aspect of the business—from channel sales to marketing, finance, operations, and product development. While strategic leadership is the key driver of this kind of change, at the end of the day, your employees will also have significant influence over whether or not a new subscription model is successful. Whether or not your company can reorganize itself around an entirely different delivery model is largely dependent on how much your employees understand and support the change and how motivated and capable they are to achieve the end goal.
There is more to getting your employees on board with a new cloud subscription model than just announcing the change and training them on the new products. A successful employee transition starts with a comprehensive strategy and includes plenty of communication, training, change management, compensation adjustments, and new approaches to hiring.
Key Differences Between License and Subscription Models
A subscription model often requires closer interactions between functional groups that were historically separate (such as product management, engineering, marketing, and IT). In the cloud, companies no longer work with the old model of developing new releases over several years and then issuing a major launch. The cloud protocol for regular, frequent updates and improvements relies on an increasingly nimble and collaborative internal process.
Additionally, the role of the channel sales team is impacted by this change. As customers use their own online research for much of the early "sales" process, they require less interaction from channel sales at the top and middle of the funnel. Sales interactions are shifting later in the customer acquisition process, while ongoing customer support and proactive success services are key to maximizing customer lifetime value and reducing churn. And with more buyers conducting their own product research before reaching out to a channel sales contact, the role of marketing is critical to educating early-stage prospects. The lowered up-front commitment and risk, combined with free trials, have also shortened the sales time.
Monthly cloud-based subscriptions bring in lower revenues from the initial sale (although with the promise of greater lifetime customer values), which have a huge impact on companies' earnings projections and revenue models. This requires sales and marketing costs to be optimized, especially in the first few critical years of a transition.
All of these changes can be difficult for employees to handle. It forces people out of their comfort zones and demands that they learn new skills and re-learn procedures for their day-to-day job. The best way to ease their transition is to include select staff in the design and development of the new programs from the beginning, and to provide change management procedures throughout the transition. Involving employees in conversations, instituting open dialog, and encouraging debate can help everyone get their heads around the new model, understand what is driving the change, and feel comfortable and confident in their new role.
Restructuring the channel sales compensation models is a key contributor to getting employees' motivations in line with a cloud subscription model. This can be a challenging process, and many businesses are still trying to figure out the best way to keep sales professionals motivated throughout a customer lifetime.
Salespeople are no longer closing large deals; they are now responsible for building long-term customer relationships and maximizing value for both the customer and the company. A one-time, up-front commission doesn't support these goals. Businesses with cloud subscription models are exploring how to incentivize channel sales teams to frequently re-engage with their customers and develop mutually beneficial relationships.
While many factors play into how successful your company can be at transitioning to a subscription model, your employees will play a large part in the eventual result. Learn more about the process of transitioning to a cloud subscription or consumption model by downloading our free eBook, “Your Guide to Transitioning to a Cloud Subscription or Consumption Usage Model."