SKU’s have been around about as long as products themselves. SKU’s or stock keeping units have been the way of identifying products and measuring them against purchase and usage since forever.
With the introduction of the subscription economy and everything as a service, is it the end of the road for SKU based licensing?
Today, we take a look at adapting to this shift in licensing styles.
It seems that every week there is an introduction of “something as a service”. Is this a new thing?
Especially where I came from, the poor suburbs of Yorkshire, every person on every street was essentially subscribing to products on a monthly payment scheme through the use of the catalogue.
Clothes, furniture and toys for the kids would be purchased on a subscription basis with set intervals over x amount of years. Granted, these items would be paid off at the end of the term but it’s the same thing. There was a total cost of ownership to be calculated. The return on investment had to be worked out based on how long the product would survive and the calculation of buying it outright vs subscribing to the item for a set period of time.
Subscriptions are not a new addition to the world of billing models. Just ask the local milkman who used to drop milk around the houses on an early morning for people that subscribed to the service. Newspapers, milk and magazines are all subscription based models that have been around for years before the SaaS models came into play.
Telephone bills have been on consumption billing since the introduction of the landline telephone automated switching was introduced in the 1950’s and 60’s. Prior to this, the switching was conducted by a switchboard operator and the telephone subscriber was billed per call (per switch made).
None of these new billing types are a new thing, so why are the vendors, distributors and partners struggling to adapt to this “new” model?
Let’s look a the SKU now and how this has been the traditional measurement of products sold in the channel for a long period of time. The SKU is a unique identifier for a product that is to be sold to an end user. It can identify the product and the specification of that product. Pick the line item from the stock list with the correct specification, identify the SKU, order the item and collect the payment. Simple right?
SKU’s were typical for perpetual licences but are still also used in SaaS licensing, in order to identify the products.
Buying a licence of Windows XP for a customer, for instance would require a SKU. The SKU would identify the version of the product as well as, in some instances, the geography.
SKU based licensing still exists and is going nowhere fast. Products that are sold through the channel are still using SKU’s, especially when there is hardware involved. So what’s all the talk of SKU based licensing diminishing?
The answer is in how we now consume software products. With the majority of vendors shifting towards a subscription model, where products are rented as opposed to sold, there is no longer a physical product that requires the tracking of before. The introduction of cloud based computing has vastly reduced the need for hardware because everything can now be hosted on the data centre and rented at a monthly cost on a usage basis.
The data centres haven’t struggled to adapt to this because they were built for this exact use case. So why is the channel struggling?
So why is the channel struggling to adapt to these changes in models?
The struggle to adapt has been from the traditional vendors who are used to selling perpetual and, at a push, annual based licences.
They don’t have the systems in place to support the calculation of monthly billing and certainly not the calculation across multiple tiers of the channel.
In cyber security, it works a little different to what it does in other sectors of software, with annual billing still being a common use case which makes billing, renewals and upsell opportunities easier to work out than switching to a full on monthly billing schedule.
An outlier to this would be the MSP billing model where monthly billing is the norm.
In this instance, the vendor is still ultimately selling direct, as the MSP is the customer and end user of the product and can thus be handled efficiently.
Add in the multiple layers of resale, including distributor, reseller, systems integrator, consultant etc and we end up with a logistical nightmare with hundreds of bills being needed every month to support the monthly billing schedules.
It becomes an exercise in paperwork, efficiency and organisation. Something the channel isn’t built for.
Traditional models allowed for a product to be sold once with a maintenance package and the renewal was on the maintenance only, which was handled on an annual basis. This is why the vendors have found it easier to switch from perpetual to annual billing as opposed to monthly billing schedules with scaling up and down of licences throughout the term.
The rise of the referral partner for SaaS models
The rise of the referral partner is something that we have seen with SaaS based models and especially monthly subscriptions. Referral partners are good for generating business that is then worked direct – but how is this going to work for industries such as cyber security when it needs the support and constant attentions of the partner?
The only way this can work is if quality support is offered in the local language by the vendor selling the product and in the same time zone.
With traditional resellers finding it difficult to transition from annual / perpetual resale of licences to subscription models, something had to be done.
Monthly / Annual recurring revenue is something that everyone reaches for these days. The vendors are bench-marked on it, the distributors crave it and the resellers rely on it so they can grow and expand. Does the reseller and distributor deserve a part of the ARR / MRR?
If they are supporting the products, maintaining the customer and driving the usage of the licence, as well as ensuring the renewal is conducted then, yes, they do.
Solutions like Channelyze.io are built to support the vendor, distributor and reseller in the management of all styles of billing and licensing where the paperwork is automatically generated for them and billing schedules are automatically calculated. Gone are the days of getting the calculator out to work out the cost of an upsell at the mid term of the life cycle of the licence.
The infrastructure is built and available to keep the channel alive and thriving, even with resale in mind, where it is required and will be required for as long as products are being sold into markets that are out of reach of the vendor.
Is the world soon going to be “subscription everything” where nobody is going to own anything?
That remains to be seen but as long as it keeps moving towards this, everyone needs to adapt in order to thrive and ultimately survive.
Channelyze Blog 