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A recent Wall Street Journal article on PTC’s shift to a subscription model (New Sales Model Obscures Weakness at Software Maker) was an interesting read for me. It shows how hard it is for a “traditional” on-premises, public company, to shift to subscription-based pricing. It’s a multi-year problem for sales, accounting, and the market to accept and understand the change. According to WSJ, for existing license customers, PTC will require a minimum 25% increase in annual contract value to change that to a subscription. With higher margins and less customer support costs, companies pressure customers to move off of on-prem solutions as fast as possible.

Business Insider reported on the aggressive tactics, the so-called “nuclear option”, of Oracle salespeople (Oracle is Using the Nuclear Option to Sell its Cloud Software) to move customers from on-prem to cloud solutions. Higher sales bonuses and commissions incentivized its sales team to sell cloud products to businesses that don’t need or want them.

Trust me, it is a very painful process to transition a product offering from on-prem to a subscription model. I’ve watched ModelN, CallidusCloud, Satmetrix, Vendavo among others, try to make the move. It can take a few years to turn the aircraft carrier. Initiating change with a big price increase and forced transition to a new platform may make sense to the accountants and incentivize salespeople, but it may not be in the best interest of customers.

Existing customers of on-prem PLM should carefully scrutinize the price increase and the hassle of redeployment when being pressured to move off on-prem. It’s likely a better choice to move to a modern and much more customer-focused approach to PLM, rather than stay on-prem for another year or two, and then be forced to re-deploy later.

 

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Ray Hein

Ray Hein

Nov 07, 2016

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