Peachtree 2013 Annual Report Download - page 26

Chief Executive’s review continued
Our strategy continued
The way our customers want to pay for our products and services
has been changing over time. We’ve designed new pricing models
that reflect and capitalise on this evolution.
The benets of subscription
3
We’re already well progressed in our transition from
a perpetual licence model, where customers pay a
one-off fee to use the core application, to a recurring
revenue model offering annual premium support
contracts and connected services. We’ve now entered
a new phase where subscription pricing gives access to
all of our features and services for a single monthly fee.
Not everyone wants to embrace subscription pricing
immediately, so we are transitioning to subscription
in a measured way. Typically, this involves a dual model
approach where we provide our customers with a
choice around how they pay for our products and
services. This also allows us to manage the financial
impact on Sage of moving from a model where customers
prepay us, to a model where we receive payment on a
monthly basis. Over time, subscription will become the
default option on our leading products and, in the longer
term, we will likely phase out perpetual licensing altogether.
We recognise that subscription pricing represents a
significant change for some of our business partners,
so we have worked with them to design commission
structures that are compatible with these new
relationships. Ultimately, subscription will lead to higher,
more resilient and sustainable revenues for both our
partners and Sage.
More active relationships with new and existing customers through subscription
The subscription
model
Subscription pricing offers us multiple levers to forge
a much broader and more active relationship with our
customers. It is attractive to them because it makes our
products more affordable and gives them the flexibility
of only paying for what they use, which can mean
lower-risk IT investment decisions.
Traditionally, under the perpetual licence model, some
customers would have been unable to buy a Sage
product because of the high initial cost. Subscription
removes this barrier because customers pay a much
lower amount each month.
Subscription also offers us opportunities with our
existing customers because it provides access to
products with richer functionality by removing high
initial upgrade costs.
In addition, subscription bundles the full package
of Sage features and services together; the core
application, premium support, connected services,
new technology and all future product updates. This
proposition is compelling, and we’re seeing customers
who have previously chosen not to maintain a support
contract relationship with us moving to subscription
because they can see the value in what we’re offering.
The ongoing and more active nature of subscription
relationships mean they have a much greater lifetime
value and offer us much more opportunity to bring
new experiences to our customers.
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Turn to our strategic
KPIs on page 45 to
see how we measure
our transition
to subscription
24 The Sage Group plc | Annual Report & Accounts 2013