Winning the Game With Pay-as-You-Go for Cloud Customer Acquisition
As predicted, cloud services continue to be adopted at an accelerated rate and are becoming commonplace in businesses and institutions of virtually any size. This presents new challenges to customer acquisition particularly for signing new customers that don’t have IT expertise familiar with cloud subscription models and/or consumption-based services. Often, these organizations are concerned about making commitments that they worry could put them at risk. This can result in hesitant prospects that have uncertainty about whether it’s time to “jump in.”
According to IDC, by 2020, marketplaces will become the de facto ecosystem hub and technology-buying platform. Fortunately, cloud service vendors like Oracle are partnering with marketplace providers, such as Arrow’s ArrowSphere, to deliver a model that makes the buy decision easy for customers with a path to long-term profitability and predictability for resale partners. Let’s see how small ball tactics can help you knock it out of the park with big cloud wins.
PAYG vs. Term Subscription
First, let’s broadly define the two principle models for cloud services.
- Term-based subscriptions are typically paid upfront, prior to receiving access to cloud services. Prices are often based on the subscription’s length (or term); and a longer subscription often translates to a lower cost.
- Pay-as-you-Go (PAYG), on the other hand, lets customers pay only for the services they have consumed – usually at full list price. Payments, of course, are due after the services are consumed and there is typically no commitment to any term or consumption level.
Each of these models has pros and cons based on the customer, their business requirements and budget. This simple table highlights key differences between the two.
For experienced cloud customers and organizations that have staff to properly size the consumption and usage requirements to meet their business requirement, term subscriptions tend to be the favored option. In this model, they will receive the best economic value and, through proper administration, will have little risk of over-committing. Further, often these organizations with the available staff are mid-sized to large enterprises; and, from a budgetary and planning perspective, they are willing to make up-front payments.
For those prospects that have concerns about cloud services meeting their requirements or a lack of experience or visibility in predicting their consumption, PAYG offers a no-risk model albeit at a higher cost. For smaller projects and customers taking their first steps toward the cloud, this option presents a viable alternative to a long-term subscription with no up-front payment.
PAYG as a Customer Acquisition Strategy
Of course, from a channel perspective the ideal customer commits to a multiple-year term subscription with large up-front annual payments, thereby ensuring predictable and profitable annual recurring revenue. So, how do we reconcile a PAYG model where on any given month profit from that customer is uncertain?
The PAYG model offers prospects an easy path to becoming cloud customers. Quite simply, it should be viewed as a first step toward a more profitable and committed term subscription and never as a permanent state for the customer.
Starting a customer out on a PAYG model overcomes objections that are common in the cloud space. The PAYG model eliminates concerns over:
- Lack of understanding as to how much of the cloud service will be consumed once deployed
- Limited visibility into variances in consumption over time
- Making the wrong decision and backing out of a contract
- Investing up-front in the face of uncertainty
- The ability for cloud services to meet business requirements
Once the customer orders the service and is provisioned, the next phase of the sales cycle should begin with the goal being to convert the customer to a term subscription based on a successful experience and their own historical consumption.
Partners should carefully monitor the customer’s deployment and consumption of the service to ensure that their business requirements are being met and that the cloud service becomes proven in their view. Further, partners should capture and analyze the consumption patterns and volumes on behalf of the customer.
ArrowSphere provides partners with consumption dashboards for IaaS and PaaS, and uses machine-learning technology to display the projected consumption of the remaining days of the billing period. ArrowSphere will also allow partners to set budget alerts to monitor subscription fluctuations, giving partner the platform to become a trusted cloud advisor.
Once a reasonable time period has passed, anywhere from 3 to 6 months, a proposal to reduce the cost of their cloud service based on the discounts provided in a term subscription should be offered, aligned to the customer’s consumption history.
Winning the cloud game comes from smaller, discrete moves at every turn of play, which effectively manufacture success – “small ball” in sports lexicon. PAYG is an ideal “small ball” tactic to efficiently capture customers and on-board them successfully into the cloud. The “big win” is to develop and grow cloud services consumption into a long-term and predictable book of business through term subscriptions. When viewed as a small ball tactic to a larger win, PAYG through the efficiency of a cloud marketplace offers a strategic sales approach to channel profitability in the cloud.
To find out how Arrow and our supplier partners can quickly get you in the cloud game, visit ArrowCloud.com or contact us at 877.558.6677 or email@example.com. Also be sure to subscribe to the Arrow Cloud Journal to stay up-to-date on all the latest sales enablement news from Arrow.
By Jeff Porter
Senior Director Cloud Go-to-Market
Oracle Cloud Business Group
Last modified: May 3, 2019