It’s time for a heat check on the subscription economy and its proposed value to customers

The subscription economy continues to expand unabated. By some estimates, companies employing subscription licensing have grown between three and four times faster than the S&P 500 over the past 12 years. As CSO of Zoho, a B2B subscription-based technology company founded over a quarter century ago, I’ve noticed a growing imbalance between providers’ profits and customers’ outcomes, particularly within SaaS.

The ubiquity and massive growth of subscription licensing have created a model that appears beyond reproach. Upon closer inspection, however, software is no longer getting cheaper, broader, and deeper for customers. Recently, the likes of Meta, Netflix, Microsoft, Oracle, SAP, and Salesforce have all announced price hikes as high as 24% for specific products or services. A new round of layoffs is underway across tech as well. Somewhere along the way, the economies of scope and scale have fallen out of whack, and business customers have been stuck with the check, made out month by month, user by user.

Rather than contributing to this chasm, software providers can drive growth by passing along the inherent benefits of the cloud and subscription licensing down to the customers. This was, after all, the initial promise of the model some 20 years ago. In my experience, longevity in the market relies on boosting the productivity, agility, and bottom lines of business customers. In other words, adding value rather than restricting it will improve both the health and sustainability of the subscription economy and its merchants. Providers can approach this strategy in the following ways.

Encourage flexibility

Migrating from one tool or system to another is painstaking, costly, and disruptive. If offered at all, trial accounts are underpowered with limits on data processing, storage, usage, and timeframe. Broadening customer trials in length and scale has a twofold benefit to vendors. First, providers get insight into adding users’ effect on the company’s performance, resources, and costs, allowing companies to modify their delivery and pricing without affecting existing, paying customers.

The second benefit to building customer flexibility and choice into the offering is new business growth. As Harvard Business Review points out, the Financial Times ran an experiment wherein they removed the ability for customers to view three free articles on their site, instead imposing a paywall immediately. Their website traffic dropped 30% and saw a long-term decline in new subscribers. “Forcing all users to convert on their first visit would mean losing out on 79% of conversions — equivalent to tens of millions of dollars in customer lifetime value.”

This is because customers prefer to experience a product and build trust with its manufacturer before making any purchasing decisions. In the case of software, where deals can amount to millions of dollars, businesses would be happy to shop around until they find a suitable solution from a trustworthy vendor at a reasonable price; however, with the industry in its current state, they could be shopping forever.