builds specialist software subscription financing marketplace

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Traditionally organisations have ‘bought’ the software that they use, although the range of licensing options available can be enough to confuse any one. However, on both sides of the IT world, vendor and customer, surprisingly little attention has been given to acquiring the right to use software on a subscription basis rather than on perpetual use licenses. This may be about to change.

At the tail end of last year, a company committed to setting up the first software financing market in the UK, surveyed over 100 ISVs to assess their plans regarding making their applications available on subscription models. The results are encouraging but do highlight some of the challenges that ISVs must tackle in order to be able to offer software via subscription licensing options.

Of those surveyed, nearly nine out of ten stated that either they already offered their software on a subscription basis, were planning to adopt such a model or were in the process of evaluating subscription licensing options. Of these software vendors, one third have used the services of a financing partner whilst another 28 percent expect so do in the near future. It is interesting to note that whilst 45 percent of ISVs today have the capability to deliver their software via a subscription service only 37.5 percent felt that their organisation had a high level of familiarity with the model whilst just over 20 percent felt such understanding to be low.

Of even greater interest is that whilst almost half of those questioned felt that there were no advantages or disadvantages to subscription licensing some 36 percent agreed that the benefits of subscription licenses outweighed those of perpetual models with the remainder, only 18 percent, disagreeing. Of the reported benefits associated with a subscription model the guarantee of recurring revenue was the highest rated advantage (63 percent) with building a better customer – vendor relationship (48 percent) filling second place. Better customer retention, increased sales and shorter sales cycles all ranked as important advantages by around a third of vendors.

The perceived customer benefits were recognised to include lower initial project costs, reduced risk, greater flexibility and simplicity. The additional capability for customers to recognise subscription licenses as a business expense rather than a capital asset also ranked highly as a customer benefit.

A third of ISVs have already utilised financing providers to assist with subscription licensing and another 24 percent have considered this approach with specialist software financing providers being the preferred source of funding. When it starts its operations on January 30, will be keen to help address many of the inhibitors to embracing software financing models identified by ISVs, especially a lack of specialist knowledge of the software industry amongst finance partners and the need for clear and transparent funding that is easily understood.

When launches the independent financing market place it is to be hoped that ISVs will take the opportunity to once again look at providing their offerings on subscription models. There is absolutely no doubt that the demand for software to be supplied via subscription will continue to grow. could be very well placed to help bring software subscription to many organisations, benefiting both software houses and their customers.