Engagement models are the fundamental plan that lays the basis of collaboration between you and your cloud consulting partner. In recent years, however, a majority of cloud customers prefer to deal with companies that offer subscription-based services. Why?
It’s fair to say that in the modern digital age, the reality is that users have significantly shifted their expectations. Customers now prefer to have greater flexibility when it comes to how they receive their services.
Most expect to pay on their own terms, only for the services that they choose. The notion of “on-demand services” has long made its way into the IT industry, most notably cloud computing.
And so, we are dedicating this post to exploring the differences between the traditional contract-based service and the currently more popular subscription-based model.
Why is the latter gaining so much popularity among cloud customers?
When it comes to a cloud consultancy company, for instance, there are broadly two types of consumption models usually seen:
Subscription-Based vs Contract-Based Services
Subscription-based service is the type of a model under which cloud customers pay a fixed price upfront before receiving any access to the required service.
The key difference in this model lies in the ability of subscribers to keep using and requesting services as long as their subscription remains active and paid for.
Let’s look at Clouve for the sake of an example. Clouve provides an array of services including a platform that encourages teams to resolve their DevOps issues by monitoring and automating most often requested tasks.
In order to provide our clients with flexibility and ease of use, Clouve offers an opportunity to request services by acquiring tickets every time. This way, our subscribers have the ability to apply for a number of monthly tickets that they can use as they need, with an option to renew these tickets at the start of every month.
In contract-based agreements, on the other hand, clients hire a consultant over a lengthy period of time that usually involves the setting up of complex, lengthy, documented formal agreements based on different billing methods such as hourly-based or usage-based models.
Such contracts often include clauses pertaining to availability, services, staff, finances, and requires customers to be in business with a specific contractor for a significant period of time.
Let’s dig a bit deeper into that:
A contract-based model is a traditional structure upon which a majority of organizations are functioning every day. This type of model entails clients setting up detailed contracts with their service providers. Such contracts require a lot of resources to build and encompass a vast variety of clauses.
Billing methods do not need to be fixed and can depend on a variety of factors. The profitability of the deal usually relies on how much the contract is worth.
Contracts involve the clients to pour-in significant resources and thus require larger initial investments over which service providers receive their return in the long term.
On top of that, contractual agreements carry the threat of legal disputes over a possible breach of contract. This eventually means a further downpour of financial and human resources. Moreover, once a contract agreement has been finalized, it takes away the freedom and flexibility of choice for the customer – an aspect that a subscription model clearly provides.
Financially taxing, contract-based models can further result in consultants charging more than the fair price of their services, which could possibly mean larger compensations for the service providers, resulting in unfair pricing for newly rising business customers.
Some argue that the entity of a contract-based model is comparatively less efficient compared to its subscription-based counterpart, and that might be the very reason the market trend is shifting towards the latter.
This model is arguably a “hot” trend in the market today and is seeing significant growth with almost 80% of customers demanding subscription-based services for software and web platform services. In a broader view, companies such as Netflix and Amazon Web Services are prime examples of the success of this model and as it’s now making its way to the corporate sector.
Staying relevant and providing the greatest customer satisfaction are the utmost priorities of any service provider and the subscription-based model helps achieve these goals very effectively.
Such a model requires services to be as transparent as possible and this ensures the client gets a clear and absolute picture of what they are paying for. A subscription-based service removes any abstraction in the agreement of what the required service would entail, which would otherwise occur on contractual terms, since they are heavily dependent on the period of time under contract.
Providing a thorough breakdown of the on-demand service is not only beneficial for the customer but also for the provider themselves since it is essentially a pre-built package and no further revisions are required.
Another upside for adopting a subscription-based model is that there is minimal risk involved for clients. An agreement only lasts till the completion of a paid service for a relatively short period of time and thus allows clients to reconsider their service provider in case of a dissatisfactory transaction.
At the same time, the efficient completion of the service allows both parties to build rapport and a trusting relationship in a short span of time. From a corporate point of view, subscription-based services can significantly lessen the chances of legal disputes that might otherwise occur due to a breach of contract when lengthy contracts are signed.
Through subscriptions, greater liability lies on behalf of the service provider as clients pay upfront, therefore, there are lesser chances of legal disputes coming back to the client.
Even from a financial point of view, subscription models provide the ability for clients to directly pay for a service and receive a breakdown of all that service would entail, making it cost-effective in the long run.
Clients have the freedom to consistently upgrade and scale their project since agreements are strictly service-based, allowing for a shift to lesser or greater subscriptions, according to their needs.
In general, subscription-based services provide more control to the client to set up an agreement that suits their requirement best, and allows them the freedom to not keep any asset they do not desire.
It’s fair to say that a subscription-based structure is an engagement model that is heavily on the rise and proving to be very popular with the newer customer base.
It provides clients with a much more dynamic approach to contract cloud services at flexible pricing, as well as creating an efficient eco-system that is highly productive for both parties involved.
Clients have the freedom to opt for the most feasible packages that suit their business needs, as this structure is highly scalable.
Arguably, the entire model revolves around service provision and strongly emphasizes customer satisfaction in the process.
Did you know that Clouve offers an efficient subscription-based service that enables its customers to easily create tickets using Clouve’s sophisticated platform?
We harvest the power of the cloud to solve complex DevOps issues while delivering a flexible and seamless experience to our customers.
Get in touch with Clouve today to find out more.