During the last decade, we’ve seen the establishment of new business models in software. I checked my blog about future PLM business models from 2010 and I can say that the future is here – subscriptions, services, maintenance included in subscriptions. These are elements of new business models used by CAD and PLM vendors today. Check a few other articles. Companies created subscription packages and industry collections. Buying services is slowly becoming a norm for many companies preferring to stay with the latest version of the software.
It is a time to think about what will be coming next on the horizon of business models.
My attention was caught by the Inc. article – The Rise Of The Rundle: A New Trend For Subscription-Based Services. Why the name is strange, but the idea is simple – bundled services. Here is a passage, which explains the meaning.
The idea of bundling has played a big part in retail strategies for years. When I started in tech at an eCommerce agency, I learned, firsthand, the power of bundling. Bundling items together and selling them as a package is great for a variety of reasons. First, you can increase the average order value (AOV) by getting the customer to buy more because of the perceived discount. Second, you can also eliminate less popular products by tossing them into the bundle and jacking up the “value” of the package. Third, you can introduce new products to customers by coupling them with best-sellers.
Weaving these two concepts together, the rundle is born – a recurring revenue bundle. Galloway believes that brands will build and even partner with others to build these lucrative bundles by combining services and charging a recurring subscription. Small brands can form strategic partnerships to create these subscription bundles and, in doing do, better defend against the goliaths. Bigger brands, such as Apple and Google, can build incredible high margin recurring revenue streams, further monetizing their immense fan base.
So, rundles are coming. What does it mean for customers, partners and vendors?
For large vendors, rundles is an opportunity to sell more services and to prove vertical integrations. With modern cloud service architecture, it is much harder to go away with poorly integrated applications. For small vendors, it can introduce challenges to integrate. In the past, file systems and relational databases provided a relatively easy path to integrate without any limits. Cloud services are much more protective and it is very easy to cut “HTTP cord”. But, on a bright side, it is also a great indicator of openness. Customers are watching carefully these days about open architectures, REST APIs other aspects of data availability and openness.
Integration is becoming much easy for both upstream and downstream applications. Cloud services can provide an easier way to bundle applications and new business models of app stores can provide an even better way to sell these applications integrated with cloud services. Here are a few examples – Onshape app store, Oracle NetSuite SuiteApp.
Customers are demanding vertical integration. A long time ago, before cloud services, it was called interoperability of applications. Time is changing and interoperability is getting new forms. At the same time, customers are concerned about the monopolization of services and limitations of possible choices. I can see such possibility – larger vendors can sell rundles including multiple applications and services as a single package. It happens in the consumer world, for example, Amazon Prime customer can decide to use Amazon Music service and not separate application such as Pandora.
What is my conclusion? Rundle is a new reality of business and it seems to be inevitable. So, it is time to get prepared by checking what vendors are using, make an assessment about their openness, API availability, partnership, and possible alternatives. Just my thoughts…
Disclaimer: I’m co-founder and CEO of OpenBOM developing cloud-based bill of materials and inventory management tool for manufacturing companies, hardware startups and supply chain. My opinion can be unintentionally biased.