Transitioning from Perpetual Licensing to Subscription Pricing – How Rubrik Did It
The subscription economy is fast becoming the order of the day, and the transition away from legacy models has been in motion for a while. Gartner predicted that by 2020, all new entrants and 80% of historical vendors will offer subscription-based business models.
For companies that currently follow a perpetual licensing model, it is important to ease into the transition to subscription-based pricing, incrementally – without alienating their existing customer base.
As Director, Pricing & Packaging Strategy at Rubrik, Inc.; Mehul Sahni has been leading the charge to usher in a subscription-based pricing model in a legacy technology market. Following are his views on how Rubrik made the shift, as originally shared me in, Price To Scale.
The backup and recovery industry has been around for decades, and has not really received the advantage of modernization from today’s technology. Incumbents in this industry tend to sell multiple hardware products, with multiple pieces of software sold on top of this hardware, leading to multiple renewals and price changes. These make it difficult to consume and manage products, and also lead to unpredictable costs. Incumbents and customers alike, had gotten used to this way, and there hadn’t been any disruption.
Rubrik went to market with just one plug-and-play appliance already with backup and recovery software. You basically paid one inclusive price for both hardware and software. This suddenly went from incumbents offering multiple devices with different renewals, to a very simplified product and also a very simplified license. The go-to market strategy resonated really well and led to our current success. Looking forward, we’re building applications on top of backup data we have for customers, such as security and compliance applications that can essentially be value-added services. ‘Backup and recovery’ is where we started, our competitive edge — but it is turning more into a data management platform altogether.
In April 2019, we came out with a subscription pricing model. At this point, we had been selling our product for two-three years and had over a thousand customers completely on the CapEx (perpetual licensing) model. We aimed to get new customers to start purchasing subscriptions. Once we penetrated this base, we would start thinking about how to get the existing install base to switch over.
In making this change, we wanted to make pricing comparable, with a slight premium. We knew we could demand a little premium going into an annual payment model. But, for the most part, we didn’t want the price to be significantly higher to incentivize customers to go into a subscription.
However, the more we thought about it, it was less about the price, and more about creating a holistic program with additional benefits that were not included in the CapEx license, to incentivize customers to switch to the subscription model. If pricing is equal or close, and customers saw all these other benefits and features in the subscription model, they would naturally choose to go that way.
How Rubrik succeeded with the Subscription Model
While the overall reception was good, a critical decision Rubrik made was to not focus on new customers alone, but to remember our existing customers too. The subscription model was always incremental to the CapEx one, which wasn’t taken away to avoid alienating existing customers.
In the industry, certain competitors have made decisions that alienated the existing install base, which led to backlash, and ultimately a reintroduction of the old model.
To walk through the process that we took to get to our subscription model - we started with a six-month-long study to really understand the pain points for our customers in the backup and recovery space.
This included interviews, surveys and even a conjoint study where customers put together their own pricing and packaging solutions. We provided a series of products, and had customers pick the top three that they would want to see bundled together. This in-depth customer study allowed us to realize the pain points:
- High upfront costs with CapEx
- Cloud migration: Chief Information Officers (CIOs) mandating teams to migrate a certain percentage to the cloud within three to five years. So, they want to make sure the license model they’re purchasing will future proof them for the cloud
- Unpredictability around costs, specifically related to hardware refreshes
Once we found these pain points, we needed to create a subscription program to tackle them while keeping our pricing in the same relative range as the CapEx model. If we resolved the issues, we realized everyone would start organically opting for this model over the CapEx (perpetual licensing).
The solutions we came up with were :
- Annual Pay: Our subscription gave the option of prepaying all upfront, or an annual payment option
- Future-proofing: We also included license transferability between the hardware appliance and the cloud for the period of the term, to eliminate worries of future-proofing, eliminating double charges for using our software to deploy to the cloud
- Free refreshes: Lastly, for complicated refreshes or unpredictable costs, we decided on an evergreen hardware refresh program — as long as you continued to renew every three years, you’d be eligible for a free hardware refresh
Essentially, if you buy Rubrik today on subscription, you will not have to worry about paying for hardware again.
All these benefits were discovered through the customer research phase, where we also asked about willingness to pay, how much they would be willing to pay more than the annual payment model, etc.