With all major players in the software industry transitioning to the Cloud in some manner, the vast majority of new software companies entering the market are doing so as “providers of Cloud services”. As a result, the $368 billion software industry is changing forever, and packaged software and perpetual license revenue is in permanent decline.

There are many reasons why this transition is occurring: technological evolution, economics, new market dynamics, changing customer preferences—to name a few.  While moving to the cloud can be daunting for software providers that rely on perpetual software licensing models, as one software vendor put it “if there’s going to be cannibalization, you want to be the one doing the eating.”  One way to sweeten the deal for customers is to allow them to take their existing licenses with them to the Cloud, or provide credits that take into account their prior license purchases.

Software providers want to enable customers to buy and consume products in the way that they want. One of the major challenges associated with doing this is that their systems have been built around perpetually licensed, on-premises software. Achieving the operational agility and flexibility needed in order to compete effectively, enable channel partners, and help customers achieve the benefits that they expect in the Cloud often requires:

  • adding the capability to sell, provision, onboard, and bill for Cloud services
  • streamlining paperwork
  • masking complexity
  • optimizing the user experience.

With a long laundry list of requirements, software providers indicate a desire to focus first on issues that impact the customer experience. For example, aggregating all customer purchases and entitlements in a single place so that customers can see their complete portfolio is an important step. To help enable this, many software providers are assigning customers with identification numbers, instead of tracking by name. At the same time, they are working to rationalize customer renewal dates where it makes sense, and making terms more uniform between offerings.

Other areas of focus include the welcome and onboarding process, as well as commerce capabilities. In the future, in addition to expanding the resources that support the scalable growth of their Cloud businesses, software vendors will need to:

  • Provide online trials, freemium, and pay per use models
  • Monitor and report on customer usage
  • Support customers via social mechanisms

Most software providers recognize that the road to the Cloud is a long one and that the transition will likely take years. Some are willing to deal with manual processes while they bring products to market, see what works, and then build or acquire technology to support this. The challenge is foreseeing where the tipping point in the adoption of the Cloud solution is, and making sure systems are in place long before they are acutely needed. Otherwise, the result may be an operational face plant.