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January 30, 2019updated 31 Jan 2019 12:08pm

Flexibility needed in enterprise infrastructure subscriptions

By GlobalData Technology

If the global economy is heading for a downturn the IT sector may come under pressure to show flexibility when it comes to collecting customer software subscriptions for enterprise infrastructure.

This is especially the case now the IT sector has largely moved from away from perpetual licenses to enterprise IT subscriptions.

How did we get here?

There have always been subscriptions in IT, most notably in the security sector where businesses spend considerable resources to keep security definitions and patterns up to date.

Where traditional perpetual licenses once flourished unopposed, today software subscriptions dominate a wide array of enterprise infrastructure investments with providers claiming this model creates flexibility for the buyer. True as this is, it is also the case that subscription models put a smile on Wall Street, who favour regular recurring revenue streams that are not subject to the fickle nature of the upgrade cycle.

How accounting preferences change over time

Generally, in times of a market upturn, customers prefer monthly expenses rather than capital outlay. However, in a contracting or slow-growth economy, the benefits of being able to write off capital expenses become much more advantageous.

This is cyclical and can be tracked, with IT customers showing a clear preference for outsourcing less and bringing functions in-house when times are tough.

Changing face of subscription services

Today, most IT providers only offer subscription services for their flagship software or offer an initial choice between subscription or perpetual licences at first sale.

But service providers who have moved to a subscription model in areas where subscription is relatively new, or non-standard, may need to show flexibility with customers who unexpectedly find they need to reduce recurring expenses.

There may be a natural pushback, especially by IT providers who have spent vasts amounts of time and money adapting business practices, sales, partners and customers to the new reality of enterprise software subscriptions.

Unfortunately, other providers, particularly publically-listed companies, are not going to want to give up their attractive and expected revenue streams. Some may even go so far as to declare subscriptions are here to stay.

Providers who choose to be inflexible and not allow customers to switch from subscription to perpetual and back again may quickly find that at least one competitor is willing to do so.

But flexibility is also a highly valued business trait as it can help build trust and show customers that the provider cares for the needs of the customer and is thinking about the long term.

The demands by shareholders may be strong, but providers claiming to be true technology players will want to live up to the promise of customer loyalty and flexibility, even if that means incurring a little Wall Street-related pain.