The growing preference for companies to use third-party cloud-based software services is having a profound impact on the enterprise technology market. For software providers, the subscription business model is becoming the dominant one. New Software-as-a-Service (SaaS) entrants were “born in the cloud,” but numerous hardware and software companies started out with traditional on-premises licensing models. Those companies want to add a subscription element to their business. Eventually, many companies may also offer their products on a pure consumption or “by-the-drink” basis, although this model is still in its early days.
But the transition is neither simple nor rapid, particularly for those enterprise technology companies that offer traditional products and services. EY professionals interviewed subject-matter resources in the enterprise technology industry to identify the key operational, financial and strategic challenges companies face as they consider making the transition. These discussions uncovered several key learnings and leading practices, but the pace of change varies; some companies are rapidly adjusting, while others are struggling to work out which steps to take, how and when. Their interviews uncovered several transition challenges, but they largely encompassed four main areas.