Business models: A million ways to pay as you go

In a few years time, what will it be like to buy software by subscription? Consult your mobile phone calling plan for a preview

The big thing in business models is the subscription, which will be a winner for IT vendors and their customers alike for the next decade. No doubt you've heard that one before. But there's a twist.

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First, a little history: Traditional business models have been in flux over the past decade in every corner of the global economy. The Internet has given buyers more control and transparency, and leveled the playing field for competition. In IT, packaged software is facing strong challenges from both services (consulting bundled with software) and open source (support plus free software).

But subscriptions have the mojo. They started in the days of Ben Franklin, essentially as a prepay that helped publishers mitigate the risk of both fixed and variable printing costs (presses, paper, ink, binding). Then came telephones, cable TV, and Netflix.

Next, high-speed Internet access lowered the variable costs of deploying and integrating software, enabling companies such as Salesforce.com to prove the viability of SaaS (software as a service). In the meantime, customers have grown increasingly unhappy with conventional software licensing and deployment, which requires big money up front for an on-site install – and lets vendors lock in customers and milk them (also known as the "razors and blades" or "drug dealer" model). The lower switching costs of a subscription plan empower customers to hold vendors to account and demand ongoing value.

So what's the twist? Subscriptions will become much more complex and specialized, just like consumer loyalty programs and financial products. What now sounds simple ($75 a month per seat) will be sliced and diced every which way to cater to every imaginable need and customer segment. Loyalty will be rewarded. Service levels will be segmented. Options and futures will be baked in (forward and backward road map compatibility, and so on).

The good news: Even if subscriptions become as complex as licensing deals, they'll still be more transparent – you'll know exactly what you're paying for as you order from an à la carte menu. The days of the golfing, boozing sales guy negotiating a price "just for you" are over. The winning model dispenses with that guy and puts his salary into product development, leveragable across many more customers paying standard subscription rates.

No more hidden fees, gotchas, or endless negotiations. It'll be Henry Ford all over again: Value for value received in nice, standardized bites. Where do I sign?

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