Cloud Monetization and Subscriptions
So you have launched a startup – congratulations! It’s a sure bet that you are going to make millions. There is just one small question left: how, exactly are you going to make all those millions? In recent years, we have been informed about business models which expand the ways that business owners on the Net can finance their activities – whether from sales of virtual products (Stardoll Habbo Hotel), remuneration from Google for clicks by their users; by financed searches (Incredimail, Conduit), affiliate commission fees on transactions and leads and more.
However, one model in particular refuses to disappear and is even enjoying an impressive period of renaissance, especially for business users: charges for services by a renewable subscription. This model is precisely suited for businesses that sell “software as a service” (SaaS) at a cost running from tens up to hundreds of dollars per month.
The number of companies in this segment has increased a high percent annually and, according to Gartner, the trend is expected to continue. It is no secret that a business that bases its revenues on subscribers enjoys great advantages: built-in returning customers, the ability to forecast ongoing revenues; a database of users who can be restored to the service as paying customers and can even be encouraged to market it to others.
It is no surprise that this is the dream of many businesses. However, unfortunately for them, this is not the preferred model for the majority of users. As users, most of us have a natural distaste for a permanent arrangement of a continuing payment. It is plain as day that the charges will exceed the time we can make actual use of the service, and that we will find it difficult or forget to cancel the automatic renewal. (By the way, such concerns are justified as a significant percentage of all the automatic renewals for online services are derived from the customers’ forgetfulness or indifference. The business owners take the calculated risk of requests for credits and transaction denials in order to enjoy these repeat purchases. I have experienced very few transactions as a customer that sent me a reminder regarding a subscription that is coming up for renewal.)
It is a tough challenge for businesses to succeed with this model both for the initial purchase, changing the free user into a paying customer, and also in “prolonging the customer life span.” Of interest, as regards the prolonging of the customer life I remember well an amusing conflict during the years that I worked for the dating websites “Cupid” and “American Singles” – an industry that survives totally on subscriptions.
On dating websites, the objective of the service is to identify for the subscribers love and companionship then send them far away from the site for long-term relationships. That is to say, the better the work done by the site, the quicker the customers will leave the site. It’s absurd isn’t it?
Keywords: cloud monetization,SaaS, Eldad Ben Tora
Eldad Ben Tora, VP of Product Management at BlueSnap.com - Led the development of product for social and commercial platforms over the last 10 years, with broad experience in product positioning, strategy and design. Specializes in web usability, customer life-cycle management and conversion rate optimization.
Photo credit: http://www.flickr.com/photos/benstephenson/276931142/