1. Enhancing the Customer Experience
through a Subscription Business Model
• Cognizant Solutions Overview
cognizant solution overview | november 2015
Evolution of a Competitive Differentiator
When technology companies sold software out of
the box, and the product ran directly on customer-
managed hardware, pricing was simple. Upgrades
required a repurchase, and the next installation
held until it was time to start the cycle all over
again. These days, however, software is stored
on the cloud, or delivered from the cloud, where
it is managed, renewed and upgraded based on
customer needs. The notion of buying perpetual
rights to a single version of the product is being
replaced with a subscription method of licensing
and pricing that aligns with how the content will
be used and consumed by the customer on an
ongoing basis.
As a result, a paradigm shift in competitive
differentiation has occurred. Instead of
emphasizing product features and functionalities,
smart independent software vendors (ISV) and
technology companies are emphasizing offer
structures for business solutions, based on price,
licensing and access. Look no farther than market
leaders such as Adobe, Microsoft, Oracle or SAP
to confirm the trend.
Positioning for Success
Given the emerging landscape, Cognizant believes
that adopting a customer-centric approach to
product creation and marketing is critical to
success in today’s technology sector. Companies
that leverage best practices in social, mobile,
analytics and cloud (SMAC) technologies will gain
the upper hand in achieving this end. If delivering a
more complete and fulfilling customer experience
is indeed the deciding factor, then possessing
the operating capabilities, policies and practices
that enable a responsive monetization model will
make a decided difference at the end of the day.
How Cognizant’s Subscription Business Model Solution Helps Technology
Companies Differentiate and Profit by Delivering a Compelling Experience
through Digital Business Processes
In a “Product + Service = Experience”
world, ease of subscription, satisfaction
of delivery and customer delight separate
the winners from the losers. How you well
you manage your customer experience
determines where you come out in the
competition.
2. cognizant solutions overview 2
The following chart provides an overview of the
various licensing types prevalent in the growth
plans of today’s leading technology firms:
SaaS and Subscription Pricing
Where software is sold as a service, subscription
pricing models have grown steadily in popularity.
In fact, IDC predicts that by 2017, 25 percent of all
software sales will be governed by a subscription
license model. This is due to a number of factors:
• Smaller customers who can’t afford the large,
upfront cost of a perpetual license gain the
utility at a lower, ongoing, renewable fixed fee.
• In a subscription model, customers gain the
flexibility of purchasing the utility from their
operating budgets, as opposed to claiming it as
a capital expense.
• The ongoing user fee tends to hold the vendor
accountable for maintenance, upgrades and
overall performance.
• Vendors benefit from a more predictable
revenue stream and improved customer
compliance.
Regarding the question of profitability,
subscription pricing holds its own when
appropriate revenue recognition guidelines are
set in place to accurately allocate costs within
the subscription model. The challenge is in
how the transactions are processed. Certainly,
subscription pricing tends to break up revenue
into smaller amounts, creating more transaction
volume and processing work for lesser revenue
per transaction. Therefore, having an agile,
automated process governed by clear business
rules that quickly manage exceptions is vital to
maintaining profitability and service quality in a
subscription-based business model. Cognizant
can help.
Success Story
Client: Leading data center
Automation based Software Maker.
Business Case: Develop a subscription
delivery platform that can manage the end
to end process from configuration, pricing,
fulfillment, entitlement management and
billing including renewals and upgrade
management.
Cognizant Solution: Cognizant worked
with a client to deliver a platform based
solution that integrated several cloud
based point solutions with back end ERP
and over time incorporated capabilities
to support growth of total addressable
market and channel based routes to
market with more extensive variations to
subscription services with attribute based
pricing and drive increased consumption.
Outcome: Client has grown the business
by 10X over 2 years and continuing to
expand the portfolio of offerings with
sophisticated capabilities related to 2 tier
distribution channels.
New business models lead to new operating complexities
Figure 1
Business
models
Product
Perpetual
licensing
Team licensing Subscription
Consumption or
usage
Value-Based Open source Hybrid Ecosystem Marketplaces
Monetization
Dimensions
Ownership rights
(Time)
Perpetuity/
Unlimited
Perpetuity/
Unlimited
Limited Limited Perpetuity/Unlimited Perpetuity/Unlimited Perpetuity/Unlimited Limited Limited Limited
Ownership rights
(Access)
Unlimited Unlimited Unlimited Limited Limited Limited Unlimited Limited Unlimited Limited
Delivery pattern Per Unit Per User (License) Per User (License) Per User (Subscriber) Per Metric/Transaction
Per Metric/Per
Feature
Per Metric/
Transaction
Per User
(Subscriber)/
Metric
Per User
(Subscriber)
Per Metric/Transaction
Payment pattern Up-Front Up-Front Periodic Periodic Per Use Per Use None
Up-Front and
Periodic
Periodic Up-Front Periodic
Revenue pattern Up-Front Up-Front Up-Front or Ratable Ratable Variable Variable Variable
Ratable and
Variable
Ratable Up-Front or Ratable
3. cognizant solutions overview 3
Making It Work for You
Cognizant has worked with 15 of the top 45 ISV and
technology companies to significantly transform
their subscription business to scale and grow
using SAP, Oracle and other best-of-breed, cloud-
based ERP solutions. Our approach embraces both
business and operating considerations to enable
goals that realize value and improve business
outcomes. It is based on a carefully architected
solution that is agile, rules-based and data-driven
and supported by requisite automation. The
following highlights our approach:
Business Growth:
Scalability
Business Goals
Business Growth: Scalability
• Will the future state enable future growth
objectives?
• Will the future state enable new types of
offerings/suppliers, routes to market, and
customers?
Future state capability expectations
from the new initiative to meet
business goals
Prioritized Business outcomes
Operational Flexibility: Agility
• Will the future state enable a flexible
operating model to support the above?
• Will the future state enable rapid changes
to operating variables (e.g. configuration,
price, billing changes)?
Improved Productivity: Degree of Automation
• Will the future state reduce errors and
manual work?
• Will the future state accelerate TAT (turn
around time) and self service capability?
Operational Flexibility:
Agility
Improved Productivity:
Degree of Automation
Business outcomes considered
for solution architecture
design in the global template
Priority*
Time to Market 1
Operations Agility/ Flexibility (Rules based,
data driven processes policies)
2
Seamless Customer Experience (Operator) 4
Seamless customer Experience
(End customer) 3
Cost – Business Ops 6
Cost - IT 5
Figure 2
What Needs to Change
The business model for subscription changes
fundamentally on value levers that drive business
in terms of offerings, monetization models, routes
to market, sales motion and automation. The
diagram below depicts the shift from economy
to experience values in the ISV and technology
sector:
Figure 3
Economy value levers
Monetization model Revenues
Offerings Product
Sales model Market segmentation
based sales motion
Routes to market Unique and distinct
Automation focus Thoughput, local
Experience value levers
Consumption
Solution/service
Experience centric
buying motion
Omni channel
Agile, global
Business
model shift
How to Accomplish the Change
To achieve the desired result, the operating
model must change to support a customer-
centric buying lifecycle, rather than a traditional,
product-centered sales lifecycle. This calls for
changes not only at the process level, but also in
the policies and rules that challenge the agility
needed to remain responsive in a subscription-
based business model. The following diagram
highlights the shift in thinking:
4. cognizant solutions overview 4
Avoiding Risk
With change, there is always risk. In our
experience, we have identified two areas of risk
that can be avoided with careful planning and
execution.
Business Risk
Subscription business requires consumption to
remain profitable. Therefore, renewal periods
based on contracts must be customized for every
type of customer in line with the value delivered
to each. Systems for monitoring, managing and
proactively tracking and billing the customer
must be set in place to capture the revenues
accurately at regular intervals. In addition,
subscription management activities such as
service fulfillment, entitlement, usage tracking
and billing must be automated and interfaced
with customer engagement systems to ensure
consistency in program execution.
Transformation Risk
To alleviate program management, technology
and change management risk during the
transformation process, we endorse the
progressive maturity of capabilities aligned to
specific business realization goals characterized
by the following:
• Develop KPIs aligned with stated business
priorities.
• Develop and align market-differentiating
capabilities to the KPIs across the commerce
lifecycle.
• Develop a “crawl, walk, run” approach to
release based on target solution architecture
capabilities identified in the fit-gap analysis.
Success Story
Client: Leading Networking Hardware and
Software Maker
Business Case: Develop a leading
practices-based capability for subscription
and software business models, which
could be implemented and scaled on their
existing IT infrastructure.
Cognizant Solution: We built scenarios
around specific capabilities to create a
“crawl, walk, run” approach to reduce
implementation complexity.
Outcome: New capabilities improved
buying motions by transforming
configuration, pricing, quotation and billing
processes.
Operating model transformation
Quote to Cash Business Process
Customer interaction (pre post sale)
Product / service Configuration
Licensing pricing
Transaction types (Orders, contracts)
Fulfillment (Delivery, provisioning)
Billing, invoicing
Management reporting
Compliance
Throughput
Supported
Static
Perpetual
Few
Product
Transaction based
Business intelligence
Reactive, off-line
Product Centric
business
Agility
Self Service
Dynamic
Consumption
Many
Service
Event, usage based
Customer intelligence
Proactive, in-line
Customer Centric
business
Process characteristics
impacted by the services
business model
Figure 4
