Laying the golden egg

Nov 22, 2013

Christmas is coming and, for many of us in the technology business, the goose is getting at least a little fatter. Whilst golden eggs may still be few and far between, the growth of the more sustainable income streams delivered by cloud-based business models give both us and our customers hope for a more predictable future.

One market in which solution-as-a-service has huge potential is Billing-as-a-Service, as various forms of subscription-based billing are tried out across an increasing number of verticals.

Contrary to its crusty, conservative image, the utilities sector has long been a pioneer of subscription billing, which is at the forefront of a new wave of service-based business models. Most people would never consider purchasing the pipes that carry water from the street to their homes, or the cables that deliver their electricity; rather it is accepted that these costs are covered by a monthly subscription charge for the service that is being provided, in addition to the charges for the units of water or electricity that are consumed.

Around 25 years ago, the development of a mass market for mobile telecoms took this concept further, with the need to amortise the high initial purchase cost of mobile handsets, and allow for an aggressive replacement cycle, driven by rapid obsolescence and heavy-use wear and tear. So, whilst usage was initially purchased mainly on a call-by-call basis, recovering hardware costs through monthly subscription charges became a key component of the mobile telecoms billing model. This was, of course, later extended with the advent of monthly billing plans that included allowances of voice minutes, SMS and data, further developing the subscription billing model.

Today, subscription billing is the talk of the town, and is often presented as a radical new discovery, but it is clear that many businesses, across a large variety of verticals, are looking at this approach as a means to smooth out revenue streams and encourage businesses and consumers to keep on spending in a post-global-financial-crisis economic environment which is far more cost conscious and averse to big ticket purchases. This works both ways, as whilst providers of goods and services are able to achieve smoother, more predictable revenue streams, purchasers get more predictable costs and avoid big ticket surprises.

Following the launch of our new Cloud Billing service, Cerillion Skyline, as well as the predictable interest around digital services we have come across a multitude of potential uses of subscription billing models, in hitherto uncharted areas. Some interesting examples include dental care, vehicle servicing, beauty treatment, school meals and medication. However, common themes amongst pretty much all of these are that: (a) recurring revenues are much more valuable to businesses today than larger – but far less predictable – one-off purchases; and (b) paying for goods and services on a subscription basis is much more attractive to customers operating in a more uncertain world where incomes and capital investment are ever under pressure. For example, people still want to be able to get their teeth fixed, but fewer of us are willing to spend large one-off sums on doing this, hence paying a monthly fee to cover whatever may arise is increasingly attractive. Equally, some dental practitioners are aware that more of their patients will commit to those big ticket pieces of dental work if the cost can be worked into some sort of subscription plan.

So, whilst the geese in the technology business may not be laying many golden eggs right now, it is clear that the key to predictable growth and sustainable success in the current environment is a healthy diet of Software-as-a-Service, rather than gorging our geese on big ticket treats simply to fatten them for Christmas.

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