Subscription software drives digital transformation
Innovations in cloud, data analytics and the Industrial Internet of Things (IIoT) are pervading the industrial and infrastructure landscape and driving advances in process automation and control. As a result, manufacturers and operators are rethinking their technology and transformation strategies. One trend gaining momentum in the age of digital transformation is subscription software.
In industrial automation, companies can take advantage of subscription models to gain access to uniquely innovative products and services, including human-machine interface (HMI) and supervisory control and data acquisition (SCADA), buy only what they require, scale it as needs change and shift the investment from a capital expenditure to an operational expense for a leaner balance sheet. Subscription delivery models can hasten industrials’ adoption of the automation software they need to progress in their transformation journeys.
The (transformation) struggle is real
Amid the pervasive focus on digital transformation, companies of all sizes and across industries are investing in the technologies necessary to digitize their process and asset operations. For many companies in the industrial space, the transformation journey is well underway, while others are just beginning.
As industrial business leaders consider the many benefits of digitized workflows, process automation, data analytics and predictive maintenance, they often find themselves stymied by an enterprise mired in legacy software and outdated financial models that are holding digital transformation at bay.
To succeed in the digital economy, businesses must embrace and integrate new technology. But there are challenges impeding the adoption of automation and control software, notably the upfront capital expense required to deploy industrial-grade software.
- CapEx justification: Large capital expenditures can stall a technology deployment before it even starts. To justify an investment in new technology and processes, decision makers must be able to quantify the return on investment. This is a challenge for many industrial businesses due to the scope and size of the various assets and processes involved and the typical duration necessary to get from pilot phase to production phase.
- Pilot purgatory: Consider a recent McKinsey report, which found that for Industry 4.0 pilot projects, 85% of the companies surveyed spend more than one year in pilot mode, and just 30% of the pilots end up reaching scale across the entire organization. The report also found companies fail to capture value from 70% of their pilots. Lengthy pilots and lack of return on investment (ROI) often prove detrimental to capital investment.
- Perpetual licensing: Based on rigid bands of tag-based cost, perpetual licensing is a familiar, albeit much maligned pricing model. For industrial companies that need access to multiple software products, along with the ability to scale their systems up or down as their operational needs change, perpetual HMI and SCADA licensing models aren’t always the best fit.
- Lack of innovation: Once purchased, software can quickly become out-of-date requiring the additional purchase of support and maintenance agreements to benefit from the latest innovations and ongoing software updates. Today’s rapidly changing landscape requires a new approach to ensure the right people within the organization are benefiting from the software they need.
Based on these challenges — and the many opportunities industrial companies may be missing — it’s clear industrial software licensing is ripe for disruption.
Whether it’s for entertainment, transportation, communication or cloud solutions, subscription is increasingly a part of our everyday lives. Enterprise software buyers are aggressively embracing the shift to subscription for the flexibility and cost management the model provides. In fact, Gartner predicts that within a year, all new entrants and 80% of established vendors will offer subscription-based business models.
What’s driving this momentum? In its research, McKinsey found flexibility and business agility (60%) are driving demand for subscription licensing over traditional perpetual licenses. Meanwhile half of respondents point to a smaller up-front investment (50%) and reduction in total cost (45%) as the top considerations for subscription.
Every industry sector and nearly all business processes will be enabled by applications available as a subscription. Airlines and trucking companies can use a subscription model to equip their fleets with tires, and global enterprises are running mission critical operations on infrastructure to which they subscribe. Likewise, industrials are beginning to subscribe to industrial automation software to accelerate digital transformation.
With subscription models, the rigid complexity of perpetual licensing models is removed from the discussion, which allows the business to focus on the underlying technology and benefits. As business and operational needs change, so too can the scale of the industrial automation system with the flexibility to support hybrid architectures that complement on premise deployments with cloud solutions. In other words, automation and control software becomes easier to acquire, scalable to meet specific needs and simpler to use, resulting in faster time to ROI.
Guide to subscription licensing
For many companies, subscribing to software is fundamentally different than purchasing it as an asset. As industrial leaders mull the pros and cons of subscription, there are several common questions to consider.
What applications should be purchased versus licensed as SaaS? Among the many considerations is whether or not a company actually needs to own software. While it may be less expensive to purchase software outright over the long term, it quickly becomes outdated and requires the purchase of additional support and maintenance plans to keep it up-to-date. The software-as-a-service (SaaS) model assures continuous improvements in performance, functionality and security, meaning companies get ongoing access to innovation. The newest, most innovative software applications are most likely to be available through a subscription model.
Where should application software reside for automation and controls, on premises or in the cloud? For many industrial manufacturers, running automation and control software in the cloud may not be an option. While often associated with cloud-based architectures, subscription does not mean software must be run in the cloud — it can be installed and run on premise or in a hybrid architecture. SaaS is a licensing model to acquire software, with a commercial model aligned with the technology shift.
Should software be a flat fee or licensed per device or per user? Subscription models allow companies to buy the amount of software or capacity they need and easily scale up — or down — as their needs change. There are several models to choose from to suit the needs of the business:
- Named users in which an individual is assigned a specific right to use software
- Total concurrent users where anyone can access the software up to the limit of the subscription
- Credit-based where a fixed number of credits are provided and allocated to enable access to a portfolio of products and capabilities
- Capacity-based, which is often associated with platform-as-a-service (PaaS) models.
Which solution architecture is the best fit? The big question that most operation technology/information technology (OT/IT) teams must consider is the architecture: What belongs on premise, in the cloud and will a hybrid architecture provide the best outcome. This decision should be determined solely by the needs of the business in terms of who needs to access the system, from where and how often. For critical processes, for example, you would likely want to retain control software (e.g., HMI/SCADA) on premise, as the real-time nature of control systems does not allow any network latency that cloud may introduce. For simple monitoring of noncritical processes, then cloud visualization and reporting make perfect sense. However, the licensing of these software and systems, regardless of their architectural nature, does not need to be a combination of perpetual and subscription, as this can get messy and unmanageable very quickly. Vendors must be able to offer SaaS-like pricing and licensing across the board, so organizations can reap the other benefits available through subscription (e.g., moving CapEx to OpEx, flexibility and value capture) regardless of their architectural choices. Furthermore, the commercial model for subscription should enable a seamless transition as an organization evolves their architecture from on-premise to hybrid or cloud-based.
Should updates be automated via remote services or held in a virtual server for testing prior to propagation? The way in which organizations test, deploy and manage actual licenses is another interesting topic. Should automatic updates to installed software be adopted, or virtualized prior to deployment? Again, it depends primarily on the nature of the system and the criticality of the process itself. A cloud monitoring solution, for example, may be perfectly suited to automatic updates, as is the nature of cloud and SaaS applications, as opposed to on premise HMI/SCADA, which would require a good level of testing prior to rolling out an update.
Does subscription cost more or less than perpetual licensing? Generally, perpetual licensing costs less over an extended time than subscription. However, when software is purchased as a perpetual license, the company must outlay cash for the full amount of the software plus annual fees in the first year, coupled with maintenance contracts, whereas companies pay only a fraction of the total cost for subscription spread over time. This allows companies to better manage cash flow.
By shifting software acquisition from the capital expenditure (CapEx) to an operating expense (OpEx), capital spending can be reallocated to other capital imperatives. This approach also more closely aligns investment to value by enabling immediate use of the software. Companies can realize return on their investment before the full cost of the software is paid.
It is difficult to draw a direct comparison as the business value of cloud is more about agility and utilization than any other cost consideration. Consider that the cloud provides us with the ability to provision and de-provision nearly unlimited resources as needed with complete control. Moving from 20% to near 100% utilization provides significant cost advantages and even greater value with the ability to quickly solve business problems without waiting for software and hardware procurement and installation.
What’s more difficult to quantify is the value of countless ideas and projects that are started, only to be stalled or placed lower on the priority list because by the time the resources are provisioned three to six months later, other initiatives have taken priority. With access to the best industrial and infrastructure control system portfolio, complemented by the agility of the cloud, projects can be conceived, provisioned and deployed within 24 hours — allowing for real-time planning and execution.
Subscribe to drive transformation
To accelerate the transformation journey, industrial companies can no longer rely on traditional models of software acquisition. The unique characteristics of subscription licensing — payments over time, flexibility, scalability and cost savings aligned with value capture — provide significant benefits to industrial manufacturers, enabling them to adopt transformative technologies quicker and easier than ever before.
Keywords: digital transformation; software-as-a-service
Enterprise software buyers are aggressively embracing the shift to subscription for the flexibility and cost management the model provides.
SaaS is simply a licensing model to acquire software, with a commercial model that is aligned with the technology shift.
By shifting software acquisition from the capital expenditure (CapEx) to an operating expense (OpEx), capital spending can be reallocated to other capital imperatives.
Which model works best for your enterprise: SaaS or perpetual licensing?