Subscription economy defies economic headwinds, fuels recurring growth

According to the SEI report, despite a general slowdown in growth in the SaaS domain, companies leveraging consumption-based models or hybrid approaches continue to outperform, indicating a shift toward more flexible and customer-aligned pricing strategies.

“The advent of Software as a Service (SaaS) and ‘pay-as-you-go’ models offers businesses the flexibility to explore and learn from new products quickly and efficiently without significant cost implications,” said Mahendra Upadhyay, chief technology officer at the Indian Broadcast Audience Research Council. “Essentially, this approach aims to minimize the risk of failure by learning from both successes and setbacks, rather than solely relying on internal trial and error.”

Technology providers have raced to offer SaaS solutions to replace existing on-premises products in many markets, supporting customers’ cloud-first strategy, said DD Mishra, VP Analyst at Gartner.

However, sounding a caution, Mishra said, “We have also noticed that despite the numerous benefits for customers, providers still face challenges in persuading existing customers with perpetual licenses to switch to subscription-based solutions.”

Sharing the challenges from a CIO perspective, Upadhyay said that embracing new technologies is crucial for any business aiming for relevance, expansion, and scaling in the current landscape. However, challenges such as the viability of the technology and the availability of skilled talent can impact the journey’s success. Consequently, these models are set to evolve, with insights from the industry “enabling quicker go-to-market (GTM) strategies for new products” and enhancing customer experiences.

The current market presents significant growth potential driven by economic factors. Providers are increasingly adopting subscription models that require minimal initial investment from customers and place a greater emphasis on continually proving value to ensure renewals.