This is part 2 of a 2-part series on Adobe. For part 1, click here.
Adobe led the way transitioning from a perpetual license to subscription.
Many software companies today are following suit. Providers of legacy software are feeling pressured to include software-as-a-service (SaaS) options so as not to risk losing market traction. Garner makes this prediction:
Gartner predicts that by 2020, all new entrants and 80% of historical vendors will offer subscription-based business models, regardless of where the software resides.
What does this mean for today’s software companies? How can they leverage business modeling insights to drive innovation? Three lessons emerge from Adobe’s transition.
1. Question Your Business Model, Even when Revenue is High
When Adobe moved from a traditional license and maintenance model (also known as a perpetual license), they didn’t just think of increasing revenue. They focused on being proactive. By evaluating their business model, they recognized opportunities to do business better.
For instance, though sales growth suggested they were attracting customers, they were also losing out on recurring revenue. Giving up perpetual licenses would mean a short-term dip in revenue, but potentially higher customer lifetime value.
Additionally, under the perpetual license model, updates were expensive and adoption was low. That combination meant that product improvements took years to reach customers. A subscription model meant instant updates, enabling the company to compete with nimble SaaS upstarts.
Finally, the subscription model also opened the door to new customer segments—customers who otherwise would be unlikely to access Adobe products due to relatively high upfront costs.
2. Seize the Opportunity Early
Switching business models doesn’t come easy. Adobe needed a large investment in technology to build out a cloud platform. They needed to rebuild their marketing strategy and distribution channels. They needed to develop a competency in managing ongoing customer relationships and product support. And of course, they needed to carefully manage the blowback from customers unhappy with the change.
By making the change early, Adobe had the time to develop the infrastructure and capabilities to operate a different business.
Competition has a way of forcing these changes. As software eats the world, the last generation of providers get caught off guard. Halfhearted attempts at digital transformation don’t stave off disruption. In the end, the incumbents end up scrambling to make monumental changes after they’ve fallen behind.
Adobe in essence disrupted itself. It anticipated that SaaS was the future of creative software. It made that future a reality before challengers had the opportunity to gain traction.
3. Be Obsessed with Your Customers and Offer Multiple Options
Adobe didn’t force the change overnight. It continued to offer perpetual licenses until Creative Cloud had gained significant traction. Users had the choice to buy subscriptions, bypassing the often-prohibitive upfront cost of Adobe’s products and receiving immediate software updates.
Adobe was actually caught off guard by the rapid adoption of Creative Cloud. Citing an overwhelming customer preference for the subscriptions, it discontinued the perpetual licenses after only one year.
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