Adobe® continues to reap the benefits a subscription-based software licensing model as seen in their recent Q4 2015 financials release. As we covered in our blog in 2013 when Adobe launched their Creative Cloud product, they went all-in on a subscription pricing model and now they're realizing the fruits of their labor from the transformation, which we'll talk about more below.
Further analysis was published by TechCrunch, “Adobe’s Record Revenue Proves Successful Business Transformation Is Possible." As author Ron Miller stated, “[Adobe] went from selling boxed software to a cloud subscription model in shorter order, and judging from its financial report that came out last week, it’s done quite well making that leap."
What’s particularly interesting is not just Adobe's whopping $1.31 billion in revenue for the quarter, but that “recurring revenue from subscriptions now represents 74% of Adobe’s business” as Miller states.
Many application producers have struggled to shift from traditional perpetual software licensing models to subscription- or usage-based models. Those that do typically take a “phased” approach by adding subscription models into their portfolio over a long period of time. However, Adobe ripped-off the Band-Aid and made the shift quickly – although that’s not the most common nor recommended approach for many producers since it's a significant change - and here's why:
Shifting to a subscription licensing model carries with it short-term revenue and EBIDTA (earnings before interest, depreciation, taxes and amortization) implications, in addition to a great deal of organizational alignment (e.g., sales compensation, customer satisfaction, renewals management) to get the business strategy in-sync with operations. Changes this significant need to be both well planned and executed for the transformation to work - and work well.
Miller went on to describe some ways that Adobe and its customers are benefiting from the shift to a subscription-based software licensing model:
- Adobe has a large, fixed pool of recurring revenue which is much more predictable than the peaks and valleys of a perpetual licensing model.
- Instead of having long, drawn-out development cycles Adobe can now add features on a regular basis which is far more manageable.
- Adobe’s customers get the latest and the greatest features delivered on a regular basis for a fixed cost – which helps them from both budgeting and IT perspectives.
Are you considering making the shift away from perpetual to other software licensing models? Read this report to help get started: Rethink Your Software Monetization Strategy.
Below are more free resources on subscription-related software licensing:
- Shifting from Perpetual to Subscription Software Licensing Doesn't Have to Be Painful [Video]
- The Rise of Subscription Software Licensing [Article]
- Cisco Shifting to a Software Licensing Model [Blog]
- Autodesk Customers are Opting for Subscription Software Licensing Model [Blog]
- SaaS Solutions in Action [Demo]