In the years since its launch, Spotify’s subscription-based software model has been embraced by a wealth of digital disruptors and tech unicorns. Its IPO is a crucial step for revealing to the world if these models can work, and what can be learned.
Rather than pursuing a regular IPO, Spotify will list its business directly onto the exchange. This signals confidence in its service, and that it’s successful enough not to need additional investment. However, while Spotify may have successfully refined its business model, many other developers and businesses are still struggling to understand how to monetise their software.
In an increasingly digital-first world, many organisations must find ways to successfully monetise their offerings. A software vendor might need to decide on the best software monetisation model, but it is a far larger task for traditional hardware vendors looking to transition to a software focused model. Migrating a hardware offering to software is a logistical, technical and business challenge, and requires expertise and insight that they might lack.
In both cases, however, changing consumer behaviour means that solving difficulties around monetisation is now important to maintaining revenue. These challenges are often complex, including: making sure products are being used per their licence; how to protect that software against fraud and understanding which features customers are using.
This last part is particularly important. By understanding how customers use their products, companies can adapt how they develop, package, control, manage and track their offerings. This, in turn, can help a business grow.
For example, it could prioritise investment in regularly used features, or instead offer multiple versions of the same product by giving customers the option to pay for individual add-on features. This ensures that businesses are only providing services and products that their customers will use – potentially bringing in extra revenue and reduces the chances that a new product will be unsuccessful.
In the case of Spotify, the company is able to offer users suggestions of artists and songs based on their listening habits, and build bespoke playlists based on the user data it has collected and analysed. This creates a personalised experience for users and encourages them to purchase repeat subscriptions or recommend the service to others.
The company can also use the data it collects to bring in alternative revenue. Spotify offers advertisers insight into the habits of its listeners, indicating who the correct target demographic or audience would be for a product, or which songs are most popular to use to sell their products.
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It would be naïve to assume, however, that making the switch to a software-based model comes without its risks, such as being hacked. Businesses need to ensure that protecting their IP is at the forefront of everything they do.
By getting to grips with a monetisation strategy, businesses will find themselves taking the lead of the competition and becoming market leaders. Should Spotify’s IPO prove to be a success, it will be a shining example that shows using progressive ways of monetisation to meet the personalised solutions that customers demand, is the best way to grow revenues and market share.
With that in mind, how should a company implement a software monetisation strategy in a secure and sustainable way?
1. Track and identify usage
First, customers expect businesses to offer products that they can tailor to best suit their needs. To understand how to do this, a business needs to track and analyse the ways that customers are using its products, and then adapt feature sets and business models. Through this, businesses can adapt quickly to evolving market demands, without needing to engineer entirely new products, which is expensive and time consuming.
2. Segment accordingly
Businesses, once they know their customers’ needs and habits, can segment them into smaller groups that share similar characteristics, motivations and behaviours. Going forward, it will be much easier to target specific groups with tailored offerings, and avoids offering them features and services that aren’t being used – saving time and resources. This also helps develop a more positive relationship with customers, who aren’t being offered services they won’t use, and may encourage further purchases.
3. Test models
When trying to reach a new market segment, a business can experiment with its product packaging by performing A/B testing. This creates a greater chance of determining which features or licensing sets are preferred for that audience and which need to be removed. This insight can then be monetised by businesses, by offering these tailored solutions to the right audiences, in turn increasing revenue.
4. Measure results
A business must ensure that its products keep up with changing market demands, and it’s important to avoid the high costs associated creating new products from scratch. With the earlier steps implemented, a business can track and optimise each of its offerings, extending a products’ lifecycle, by refining and improving it over time. This also helps it to stay ahead of the competition by quickly moving updates to market by identifying R&D, business and engineering needs.
5. Protect data
Finally, while ensuring an effective software monetisation strategy is in place, it would be meaningless should a hacker find a way to steal or tamper with a business’ product. Creating solutions to prevent reverse engineering, tampering, theft and licensing infringement can be costly, so many developers are making us of third-party solutions instead.
This allows them to focus on creating and improving their products. Often, a secure IP-protection solution with a trusted software licensing platform provider is the best form of protection for businesses and customers.
Sourced by Michael Zunke, CTO for Software Monetisation, Gemalto