Software product development firms like IBM, Microsoft and niche players throughout the world have been around since last century. Software was sold and paid for based on a perpetual model: pay for the license, pay for support and maintenance. This model was based on known and safe hardware revenue models that management understood. A disk or dongle was physically delivered to the customer and activated with a code. The acquisition risk was on the buyer, with large upfront milestone-based costs (50-100% of the total price) and maintenance costs, typically about 15-20% paid upfront as well. This was an accepted practice and called for enterprise sales skills, a great ROI story and enterprise go-to-market (GTM) sales strategies… and sometimes a leap of faith by the buyer.
With the prevalence and popularity of the internet, cloud and supercomputers, software as a service (SaaS) became a new way to “acquire” software in the late 90s. Companies like Salesforce and Concur built major organizations on the SaaS model. The acquisition risk had now shifted into a more balanced state between buyer and seller. Firms did not have to own software, they could “rent” software for periods of time to measure the impact of it on their business, without major, or less, upfront investments. The ability to move to a competitive solution was a little easier, and it was easier to “try before you buy” with a variety of levels: freemium, starter to professional.
This risk shift changed GTM strategies, and the marketing and sales team skills associated with them. Revenue teams had to evolve from just acquiring new logos to a retention of revenue strategy that included expansion — cross selling and upselling.
Buying decisions went from a dependency on a big capital budget and a great ROI story to a solid operating budget based on business impacts measured in months not years. Contracts were adjusted to reflect this.
Sales reps were not just paid on the bookings, but the usage of the software. New positions evolved like Customer Success, to reduce customer churn and to ensure net retention rates (NRR) for company valuations.
The Traditional Sales funnel — vertical — evolved to a bowtie — horizontal (Origin: 2009 – Martin Collins, Shearwaterblog, Bowtie). The concept was simple, the Initial-Purchase Stage (left side of bow tie): primary revenue (i.e. airline ticket) turned the classic funnel counterclockwise, with the bottom of the funnel pointed to the right. It feeds a “new funnel” that mirrors the traditional funnel creating the shape of the bowtie. On the right side of the bowtie, the Post-Purchase Stage: additional revenue (i.e. seat upgrade, baggage fees) can increase the overall revenue from the initial purchase on the left side according to Collins.
The next evolution from Subscription that tips the bowtie in the favor of the buyer is the Consumption Model (i.e. pay for only what you use), where the monetization strategy centers on delivering impact and positions the seller at risk (Winning by Design: winningbydesign.com) while empowering the buyer.
Is your GTM strategy and team ready for this shift?
Paul Abdool is a 3-time VP Sales / CRO & Partnerships go-to-market strategist known for his thought-provoking articles and speaking engagements. Connect with Paul on LinkedIn.
