The world of software sales is undergoing a sea change, albeit a quiet one.
Until recently, the majority of companies selling software sold it as a one-time download with licenses included in perpetuity. This holds true regardless if a company was selling a B2C or B2B software product. Firms might replace or update that software — but that generally didn’t happen more often than annually.
But, FastSpring CEO David Nachman told Karen Webster in a recent conversation, the software business model is being steadily supplanted by Software-as-a-Service (SaaS) subscription models in which buyers pay for continual access, instead of for a single product download.
“We’ve seen a dramatic shift toward subscription — last year was the first year where we crossed over to where the majority of our transactions are subscription-based as opposed to one-time download,” Nachmam said. “And what we’re seeing is even if they haven’t yet done it, they’re talking about it. When we surveyed our customers, we saw that close to 70 percent were looking to make the transition in the next 12 months. We expect that number to continue to go up in the years to come.”
FastSpring, which provides a full-service eCommerce platform that includes features like recurring payments, tax management and subscription services for B2B and B2C software providers, sees a big opportunity for its customers in that change.
But there will also be a challenge because selling SaaS requires changes to multiple aspects of a software provider’s business model, including their sales process, update cycles, the commerce journey and product pricing model. Those hurdles, Nachman said, are real and need significant consideration.
Pushing Through the Headwinds
For a lot of firms, he noted, the first big challenge to overcome is simple economics — their businesses are based on large influxes of revenue from the big upfront fee firms pay for access to those perpetual software licenses. Ultimately, he said, they will meet and exceed those revenue shortfalls with the subscription conversion — while having a stickier, more durable customer relationship — but revenue in the near term can go down before it builds back up.
That means, Nachman said, FastSpring is seeing a lot of software makers rolling out with hybridized models, augmenting their one-time downloads with subscription add-ons as they make that transition.
Moreover, he said, the move to subscription models allows those providers to then customize their offerings in ways that best meet their needs — a kind of flexibility the old model simply didn’t offer. That might mean a monthly subscription or an annual subscription contract that is spread out into 12 even monthly payments. There are a lot of variations that can be built in, he noted, and what FastSpring sees in working with its thousands of software providers is that often experimentation is the best way to find what works.
“We’ve got roughly 5,000 customers all selling digital goods, almost all of which are software sellers,” he said. “We’ve got a pretty good laboratory in terms of looking at what’s working for some sellers or what’s not working and [we are] helping to transfer those best practices where we can.”
And more than best practices, he said, FastSpring also takes over all the management of payments and issues like managing subscription rebills when credit cards have expired or been replaced. It also handles returns, refunds, and software fulfillment.
While the move online and into subscriptions means software providers can have continuous contact with their client bases, the opportunities to grow and innovate are myriad — but none of it can happen unless some basic blocking and tackling is in place.
Moving to Next-Level Options
Among the things that never cease to surprise the staff at FastSpring, Nachman said, is just how many truly terrible online checkouts exist as of 2020. Many have far too many steps and redirects that genuinely make buyers worry they’ve been intercepted by fraudsters.
Buyers who have shopped on Amazon before are aware it shouldn’t be like this — and simplifying the commerce experience is an easy piece of low-hanging fruit to increase conversions. He noted that when FastSpring signs on new customers, they often see a 20 percent to 40 percent jump in revenue — mostly due to improving those checkouts.
Payments, he noted, are also something that always needs to be local — even if a customer lives in a different locality. That means details like local language around product descriptions and a payment method lineup that actually makes sense regionally. In the U.S., he noted, cards work. In China, on the other hand, Alipay had better be on the menu of options, or a business runs good odds of seeing abandoned carts.
From there, he said, a lot of what happens next is about taking what is possible, and what firms know about their end users, and combining all that to maximum effect. Nachman cited as an example combining a free trial program with an ability to follow customers who did not sign on for the free trial via email address to reset their pricing structure. Customers who came to the site to sign up with no free trial paid the highest price, those who did the free trial got a discount, and those who walked away after a free trial got another follow-up email offering a better discount.
The ability to dynamically price, along with their data about the type of customer who comes to buy in one shot as opposed to those who need promotion, he noted, combine to build a more effective customer capture system.
“Very often what we’ll encourage our clients to do is experiment with a variety of different subscription approaches, and figure out what works best,” he said. “And that varies nearly from provider to provider.”