These days, innovation is coming not only in technologies and products, but also to business models. We are observing one of the most significant shakeouts of business models in enterprise software. Companies want to buy software differently and it is obviously raising many questions in front of established PLM vendors and startup companies. What is the right revenue model? How to sell PLM software tomorrow?
I want to refer to some of my earlier blog post related to PLM, licensing and software models – Faltered licenses and future PLM business models; PLM innovation and packaging trajectories; ‘Alte Zachen’ PLM and New Business Models and The future battle for upfront PLM cost.
The demand of customers is faster ROI. It clearly impacts the transformation of business models. In addition to that, in a modern dynamic business environment, customers are looking how to predict cost of future growth or shrinkage in software licenses usage. It brings a question about sustainable “usage based” business models. The variety of business models is much larger these days. Many of new models are coming from internet companies, SaaS business models and consumer applications.It made me think about possible revenue models and the way PLM vendors are using them today. So, here is my list of 8 revenue models and analysis of their usage in the industry. I tried to order them based on how I see adoption of these revenue models in engineering and manufacturing software.
1- Value
In my view, this is the most widely accepted revenue model for PLM products these days. The fundamental assumption in the fact PLM brings significant value. So, vendors are charging customers with the assumption usage of PLM products brings significant cost saving or PLM product is mission critical to customer, so customer has to buy it.
2- Product lines
This is another widely adopted revenue model in PLM (and enterprise software) world. Customer is buying multiple products together. The objective of the vendor is to maximize total revenue. In such situation the combination and revenue from specific products can be irrelevant.
3- Volume revenues
This model is mostly relevant in large PLM deals. When a large OEM is buying 1000s of licenses, vendor is typically using a special “volume prices”. The name of this model is different in every case, but the fundamental assumption is the same – to provide discount for customers paying a significant amount of money. Sometimes, vendors are using floating licensing to limit the number of concurrent users in the system.
4- Services
The fundamentals of this model – product is free. Customer pays for services – installation, setup, configuration, implementation, data import and many others. This system is mostly used with a combination of previous models and rarely used a main revenue model for PLM vendor.
5- Features
This is a revenue model in which customer is paying for “specific features”. In the past, such revenue model used for enterprise software with high and very diversified features set. I can see less usage of such model nowadays – most of vendors are trying to avoid the complexity of packaging and pricing related to such model
6- Subscription
This is growing revenue model these days. After huge popularity among internet companies, the adoption of subscription models is growing in enterprise software and PLM as well. Typically customers are paying subscription fees on annual basis. The customer advantage is low entry cost. The vendor challenge is slow revenue growth compared to traditional licensing.
7- Freemium
This is a variation of free model. In freemium model, customer is getting part of product for free and pay for premium part of the product. Even this model is heavily associated with modern internet startup and SaaS products, I can see elements of this model in existing PLM product offerings. The most widely adopted is when PLM vendor is providing “read-only” part of PLM product for free and charge only for licenses that allowing to user to “enter” or “edit” data.
8- Product is free, revenues from advertising
The most common model used by internet startups and companies. Facebook and Google are probably on the top of the list using such model. I’m not aware about PLM vendors using such model. However, I can think (probably) about some vendors in the business of product catalogs providing their online services for free and charging for ads.
What is my conclusion? In today’s world of PLM software vendors are looking for new business models. One of the reasons – customers are looking how to buy PLM differently. The perception in the market – PLM is too expensive. Current revenue and business model was developed to satisfy needs of large customers back in the days vendors were selling huge packages of PLM software that required multi-year implementation contracts, support and maintenance. The today’s reality is different. Customers are looking how to solve their business problem using agile software and business models with fast ROI. At the same time, PLM requires significant investment in process organization and company transformation. Because of that, customers are looking for “predictable” licensing models that will allow them to grow PLM implementation in the future. It is an interesting time to be on both sides and I can see lot of changes in the future PLM business and revenue models. Just my thoughts…
Best, Oleg
