Is it time to stop selling on-prem software? Not yet.
For some software categories and types, on-prem deployments will be needed for a long time. These include software that requires high-performance computing, software that runs in factories not connected to the internet, and software that contains or deals with data that the owner doesn’t want in the cloud.
The reality is that most software companies manage a large on-prem software offering that won’t go away anytime soon. Nor should it. In many use cases, that’s what buyers want. For that reason, on-prem software will be around for decades, based on what we know today. New solutions—sometimes embedded, on-prem, or SaaS offerings—will lead software companies to offer a broader spectrum to their customers.
The Value of a Hybrid Approach
Currently, most software and tech companies that offer software have a mix of deployment models. Software suppliers continue to use on-premises deployments widely. The 2020 Revenera Monetization Monitor: Monetization Models and Pricing report found that 49% of companies still use on-premises software as the model for more than half of their product lines. While SaaS is the fastest-growing deployment model (with 67% of respondents planning to increase its usage in the next 12–18 months), on-premises software’s overall usage is stronger than its decline.
To meet customers’ needs, independent software vendors (ISVs) often use on-prem as part of a hybrid approach, blending software monetization and deployment models. On-premises is the dominant deployment model; it’s often paired with subscription/term and perpetual, the dominant monetization models.
Consider Adobe Creative Cloud, which combines more than 20 desktop and mobile applications, including Acrobat DC, InDesign, and Photoshop. Though “cloud” is in the name, Adobe’s hybrid approach for this offering essentially moves the licensing and entitlement management piece to the cloud, while most of the applications still are installed locally through on-premises, desktop software. In this example, flexible plans and pricing give customers access to the features and functions they use most. A professional designer may need and value a subscription license for the entire suite—nearly $1000 per user per year (comparable to what it used to cost for a perpetual license for just a single application). If, however, you’re looking to take the red-eye out of a few family photos, spending $31.49 for a single month’s access to Photoshop, installed on your desktop, might be more palatable.
Not All Moves from On-Prem to SaaS Are Equal
Though SaaSification is on the rise as software suppliers look to adapt pricing and licensing strategies, the move toward SaaS will likely vary industry-by-industry, based on different and specific needs of vertical markets. In some, the move to SaaS is a natural journey and is well underway. Applications that require collaboration, such as customer relationship management (CRMs) platforms, are a particularly good fit for this.
For others, the move is trickier. Software suppliers in select fields move a bit more slowly. These will likely continue to rely on hybrid deployment—and on-prem software—for some time to come. Underpinning this: the functional reality that certain software performs better locally. Engineering applications, for example, may require significant horsepower and might not perform optimally with the latency of some SaaS environments.
Product Usage Data Supports the Move to the Cloud
When you’re ready to move an application to the cloud, carefully evaluate what’s suited to the transition. Should everything move? How can you be best positioned for the move?
Informing those answers: usage data from existing on-premise deployments. Efficient collection of such data can provide valuable insights into your strategic initiatives. Usage analytics can inform ISVs about important factors, such as which features customers use and value the most, and how likely customers are to accept new models.
Accurate usage intelligence provides the data to help not only support the move to the cloud but to help ensure that pricing is correctly aligned with value for the SaaS application. It’s a must for increased reliance on usage-based monetization models and is essential for delivering the software in a way that customers want. Accurate pricing not only helps capture the market but can help relieve some of the temptations for users to pirate the software.
So, while it’s not yet time to stop selling on-prem, now’s the time to rely on on-premises deployments as a source of information that can help strengthen future moves.