The grand entry hall in New York’s Natural History Museum has two of the coolest dinosaur skeletons that I have ever seen. The raptor looks like it’s ready to jump off the pedestal and eat the next busload of tourists coming through the door. The dinosaurs are cool, but they’re also extinct. They weren’t able to adapt to their changing environment and ultimately ended up as museum pieces.
Business is changing too, with companies reaching out to grab onto the benefits available in long-term recurring revenue relationships with their customers. For billing providers, it may be an ‘adapt or die’ moment, as those with the most robust recurring revenue solutions will have a distinct competitive advantage.
Aria Systems has partnered with Gatepoint Research on a study of the challenges that businesses face when they move to recurring revenue models. On first read, there are not many surprises here; but there are some interesting data points, especially when you start connecting the dots between questions. I want to focus on three key findings.
Probably the most significant question in the survey is whether or not companies are satisfied with their existing recurring revenue billing functions. Only 75% of respondents actually answered that question, which in itself is revealing. So how do respondents feel about their current solutions?
42% rated a 4 or 5 which falls in the “satisfied” to the “very satisfied” range.
25% were non-committal, giving a 3 rating, which I read as, “It’s working for now, but we’re not all that excited about it and it may not hold up over time.”
8% rated a 1 or 2 – which I read as, “Blow it up and start over!”
25% answered N/A or declined to answer at all – hmmmm, why is that?
My mom always taught me that if you can’t say something nice, it’s better not to say anything at all. I have to wonder if the same principle is in play here, too. Rather than outing their existing solution as less than desirable, respondents chose to say nothing at all. You have to assume that they are not dancing in the streets celebrating their current solutions, or they would have said so. I don’t know how else to account for the 25% non-response.
If you make the following assumptions: that over half of respondents aren’t really satisfied with their current solutions and that half of respondents are either moving or looking to move some or all of their billing to the cloud. Then, factor in data from other surveys indicating that over 43% of companies already have recurring revenue streams and the trend is growing? The data paints a fairly rosy picture for the future of the SaaS Billing industry.
The second key finding is related to the current landscape and future direction. The data shows that many companies are operating more than one billing solution. That’s not unusual, but it does point out an opportunity for those companies to reduce costs through consolidation.
Companies are looking for solutions that can support sophisticated consumption- based revenue models and flexible product catalogs. Most respondents indicated a desire to move to SaaS solutions for some or all of their billing. The SaaS Billing industry cut its teeth on subscriptions, but the data seems to indicate an opportunity for SaaS providers who can prove their ability to support a wide variety of consumption-based use cases.
The fact that 80% of respondents are looking at the cloud provides a challenge for traditional software providers who don’t want to end up like the dinosaurs. Don’t be surprised to see one or more of these providers either introduce a SaaS alternative or make an entry into the SaaS market through acquisition in the not too distant future.
The third key finding relates to the growing complexity of business relationships. Forty-three percent of respondents listed Channel/Reseller Management as a high priority item. That represents a growing trend and provides a challenge for billing providers. This is an area where many businesses are still relying on spreadsheets.
In a previous life, I helped build and manage a homegrown system that did this. I always tell my kids that they made my hair gray, but it was actually this system that did much of the damage. This is one of the areas where billing becomes something akin to rocket science and it can be a true differentiator for the vendor(s) that get it right. If you’re a biller with channel partners or the future potential for channel partners (which means most of you), this is something you should be demanding from your software or service provider.
Again, overall, I don’t see many surprises in the data, but I do see some challenges for billing software and SaaS Billing providers. Businesses are looking for more sophisticated consumption-based solutions and they like the business benefits that SaaS solutions provide. Providers who can adapt as the market evolves will be successful. Those that can’t will ultimately become museum pieces alongside the dinosaurs.
Bob Harden, Former Director, Global Billing Solutions, Experian
Just learning about subscription billing? Download the new Subscription Billing for Dummies book and learn more. Are you concerned about buying the right subscription commerce solution for your company? Consider downloading the Six Key Buying Considerations e-Paper and make an educated decision on the future of your recurring revenue offering.