Rethinking the channel and embracing a subscriptions-based cloud

Historically, the channel has relied heavily on reselling perpetual software licenses and server hardware. The days of this model, though, are numbered. “Reselling perpetual software licenses, or server hardware, is a mug's game,” says Cruise. “Whether you're in distribution or a reseller, it’s commoditised and heavily reliant on credit.”

In contrast, selling cloud solutions does not require substantial credit limits. “You don't have to have a credit limit of a million Rand with your distributor to sell Routed’s cloud,” Cruise explains. “This shift from capital expenditure (capex) to operating expenditure (opex) is a practical reason for resellers and MSPs to rethink how they move forward.”

Subscription-based licensing is already the standard for major enterprise software providers. The frequently cited benefits include ensuring customers have access to the latest software versions and support for a fixed term, providing predictability, and, ultimately, continuous innovation.

“The last dominoes of perpetual licencing are falling across the board. Of course, there are pros and cons to both perpetual licences and subscription-based models. Perpetual licences offer long-term ownership with less frequent payments, while subscription models provide ongoing updates and flexibility at the expense of continuous payments. An imperfect comparison is the choice between owning your own house versus renting one while bearing in mind there’s no capital appreciation in buying hardware or software,” notes Cruise.

So how is the channel changing? “Well, it’s very clear that people are moving, and have been moving for a while, into an opex type, subscription-based model, not just for software, but also for hardware.”

For resellers and managed service providers, transitioning to a subscription model means more flexibility and less dependence on credit limits. “It’s the difference between spending a million rand on a server or R50,000 a month on infrastructure as a service," Cruise explains. “There’s the opportunity for better margins by selling services on a monthly basis, creating a steady stream of annuity income.”

End users also benefit from subscription models. “If subscriptions are well priced and include valuable extras like support and upgrades, there is definite value. It allows end users to compare services more easily and choose solutions that best fit their needs without the burden of large upfront investments. It’s a win-win situation for both providers and customers,” says Cruise.

Despite the clear advantages, the transition to subscription models has been slow for some in the channel, particularly those with legacy structures built around perpetual licenses. “The channel is due for an overhaul. Traditional ways of shifting tin or shrink-wrapped software and getting a commission for it are on their way out,” he adds. 

VMware's transition to a subscription model is one of the latest major shifts in the industry, “The change is necessary and inevitable and can deliver substantial advantages for resellers, MSPs, and end users alike. For the channel, it can unlock the benefits of recurring revenue, reduce the dependency on credit, and forge stronger, more resilient relationships with clients. This is the way the world is going, and people are going to have to embrace it,” says Cruise.