It is no secret that everything from consumer technology to business services are moving toward a service-based or subscription model, but now it’s not uncommon to bemoan this as a method of industry maximising revenue, which is one way of looking at it. However, it is important to recognise this trend for what it delivers to the consumers: value.

The success of consumer subscriptions

If we truly want to understand the value of subscriptions, let’s start by looking at the biggest players in the consumer sphere – Spotify, Amazon and Netflix. Although these are essentially entertainment options, with the partial exception of Amazon, it is interesting how many and how much people are willing to spend their hard-earned cash on these commodity services.

Spotify had 40 million paid subscribers as of September 2016. Amazon Prime had a healthy 63 million customers as of July 2016, with an increase of 19 million from the year before. This figure is so high now that it is estimated that Prime members now outnumber non-Prime members. When services such as Netflix and Spotify started to emerge, there were many worries. What would happen to CD and DVD sales? Well, time has told that sad story, unfortunately for those industries. However, it has resulted in consumers being able to access the content they want more easily, quickly, and affordably than ever. So, when we ask ourselves why we spend our disposable income on these services, the answer is obvious.  They deliver more value than any other delivery method, and give continuously add to this.

Same buck, more bang

The worth here of these services is that unlike buying a DVD or CD and being stuck with that one option, they continuously refresh their offerings. When Amazon Prime launched, the service was based around the idea of free one-day delivery on any eligible items. Then Amazon acquired LoveFilm and produced an instant video streaming service, now including proprietary content, like Netflix does. After this success, the firm also bundled in a music service to rival both Spotify and the less successful Apple Music. The important part of all these additions is that it at no point affected the membership cost. So, customers were continuously offered a more valuable service simply as part of their existing subscription. Netflix recently added $800 million of debt to help fund more and more original content, leading to hit shows such as “Narcos,” new series of un-renewed shows such as “Black Mirror,” and many more original ideas.

Suddenly, Netflix is not just a streaming site for all the TV shows you love, or movies you want to see – but a channel in and of itself. Subscribers want the promise of new seasons of content that can’t be obtained anywhere else. These subscription-based services deliver value to the customer by continuously improving their offerings, bringing out new features, and delivering more and more of this value to subscribers.

What does this mean for businesses?

It’s no secret that businesses tend to lag behind consumer trends. Systems often are scattered throughout an organization, and the requirement for due diligence over every penny spent. However, we can already see some of this shift occurring; for example, in Microsoft’s Office 365. Office is the industry standard for word processing, spreadsheets and PowerPoints, even when a non-Microsoft presentation is still called a PowerPoint is evidence of this — sort of like every copy machine is called a “Xerox” and every tissue is called a “Kleenex.”

This suite has taken businesses into the first step of cloud reliance, with a 70 percent increase in subscribers, bringing its numbers up to 18.2 million. No longer do those 18.2 million organizations need to worry about paying to upgrade to the next numbered product, when it just updates automatically.

And this trend is ever widening. Most business support systems, whether they be ITSM, CAFM, eHR, ERP, accounting software or what have you, are starting to offer robust service-based models. Not so long ago, for any of these systems, a business would be urged to pay a huge capital expenditure, with an operational expenditure support contract to use these systems. Now at the time this was all fine and dandy. Budget was found, used and a new system was installed.

Great. Now it’s four, five or even eight years later. The world has moved on, but the way of working hasn’t changed. Was that investment really as valuable as it seemed at the time? Being cutting edge for a year, but then what?

Another issue raises its ugly head: the sales person on the other end of the phone trying to get their hands in the business’ pockets to move from one version to another.

It seems it might be time to learn from the consumer model. Lower operation expense expenditures in a subscription format to produce the Amazon Prime of business support systems. Don’t let your departments stagnate until they are forced to spend their budgets just getting back up to speed. Especially when a lower level investment can remain on the cutting edge with the ever-expanding portfolio of functionality. You have already switched to this at home, why not in your home away from home – the office?

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Many organisations are taking a DIY approach to their hosting needs and even some of their development needs. It’s worthwhile to note though that hosting software can be a complicated and costly affair, and organisations that attempt to take on the task often find a number of hidden costs buried beneath the surface that are ultimately unexpected or surprising to them.

Before taking on this challenge, it may be a good idea to stop and ponder where those hidden costs are and what that actually means for your organisation. For example, ongoing costs for hosting your own software include applying fixes, patches, upgrades, integration maintenance, hardware maintenance and purchasing and countless other tasks. A little money saved in one area, such as implementation, can lead to a bunch spent elsewhere, for instance on operational costs.

For those looking to avoid some of these costs, the cloud has quickly become a high-quality option for mitigating costs and other obstacles. When compared to the use of on-premise solutions, the cloud almost always offers a better return on investment. Regarding costs, you’ll appear to pay more upfront for cloud solutions, but following the investment there’s likely nothing unhidden beneath the surface. This is not the case of on-premise solutions, where the upfront costs appear lower overall, but are followed with many underwater and hidden costs.

If we lay the two software models side by side and name them icebergs, the differences are often stark. Let’s say that they both have roughly the same amount of area floating above the water, but that those represent vastly different costs and ratios. For example, the portion of the iceberg above the water on the cloud side is 63% of its total cost, money spent on subscription costs. Comparatively, the portion lifted out of the water on the on-premise iceberg represents the implementation costs, or only 9% of the overall cost of the solution.

On-premise solutions costs overall are much more difficult to define. The only fees that you see popping up out of the water are for licenses, usually a very small portion of the overall solution spend. But buried beneath the water lies the operational costs including upgrades, maintenance, rewrites, and patches and fixes. All of these components are much more difficult to predict and leave organisations struggling to nail down costs and operate efficiently because of it.

With on-premise solutions having the license fee as only 9% of the total costs, what are your alternatives? Cloud solutions are gaining more and more momentum worldwide and the driving factor is efficiency. At first glance, the investment in cloud solutions seems higher, but what must be realised is that we get more in return. The total cost of ownership for these solutions is lower, their costs are more predictable and these solutions allow you to focus more on your core business. Given the unpredictable nature of costs of on-premise solutions, this simply is not the case.

Another difference between the two solutions sets is the process of continuous development. Perhaps this is a bit of an obscure element to take into account when comparing the differences between software solutions. On-premise solutions hinder the process of continuous development, while this is the primary differentiator for cloud solutions. There’s simply no reason that a cloud solutions is not constantly up to date, upgraded and regularly enhanced. Cloud solutions are designed, in part, to be updated regularly.

Dating back to the years that software was shipped on CDs, many companies still deliver on-premise updates in a yearly or half-yearly release cycles. This is simply untenable in an ever-increasingly rapidly changing world of always on. Our clients must be able to respond rapidly to our customers and their service needs, and we must be able to respond quickly to customer demands and changes in the market.

Though continuous development is a term that’s likely more important to software designer types than others, it’s really just another way for us to recognise the need for solutions that are continuously up to date and ready for our use to serve our clients, whether they are inside or outside of the organisation. Operating systems mired in the past don’t deliver optimal results for any organisation.

On-premise solutions that must wait for half yearly or yearly releases means organisations must wait for the next ‘shipping moment’ for something that may have been ready for release much earlier. Workarounds become commonplace in scenarios like this. By experiencing more structural release moments, more commonly found in the cloud, users are able to receive new solutions as they are ready.

Additionally, more releases improves the feedback loop between clients and customers. In a static situation, once a product has shipped it’s not uncommon for a half year or more to pass. Thus, by the time customer feedback reaches developers, the likelihood is that the original developers on the project have moved on or are working on other projects. Their having to switch back to solutions that were created “way back” is not very efficient. Faster feedback makes sure that developers are more involved in the customer experience, and are able to respond quickly with improvements.

All in all, continuous deployment elevates the overall user experience – found in the cloud. The most likely future of support and IT services.