ISG Software Research Analyst Perspectives

I am happy to share insights gleaned from our latest Buyers Guide, an assessment of how well software providers’ offerings meet buyers’ requirements. The Subscription Management: Ventana Research Buyers Guide is the distillation of a year of market and product research by ISG and Ventana Research.

The era of subscriptions has transformed the way businesses operate and consumers engage with services across every industry. Enterprises are increasingly adopting both a digital approach to selling as well as offering digital products and services that complement physical products. Customers now have the option to purchase through periodic subscription or consumption-based pricing rather than traditional one-time ownership. Add to this an increasing desire for customers to purchase when, how and where they want—whether via digital commerce, self-service portals or by voice and text—and the landscape looks very different from even just five years ago.

For the provider, subscription revenue can create a more predictable revenue stream. Subscribers pay on a predetermined periodic basis over the lifetime of the engagement or contract.

At ISG Research, we define subscription management broadly to cover all aspects of monetization. This includes flat-fee subscription business models, usage and milestone methods as well as traditional, one-time sales. We assess how providers support all types of industries and sizes of enterprises that may be using self-contained systems or integrating with third-party ERP, billing, digital commerce and custom systems. In addition, we uniquely gauge providers’ ability to collect payments with invoiced transactions and allocate them to originators, royalty holders or other partners and owners of assets. Effective account receivables and cash flow also require dunning and collections capability.

Subscriptions themselves are not new. Newspapers and magazines were early in this process many decades ago, while Netflix started out mailing DVDs paid for via a flat monthly fee. Digital products and services, such as software as a service and mobile applications, were at the forefront of subscription pricing adoption. HBO, Netflix, Spotify and iTunes are examples of subscriptions in the business-to-consumer market. Today, subscriptions are common for any number of products or services with a duration established by the provider.

We have all become familiar with the subscription model in our everyday lives, both as individual consumers and at work. This has created an acceptance of and an appetite for subscriptions as a pricing model. Subscriptions enable consumers to spread the expense over time rather than making a one-time upfront payment. In business, extending cost across the lifetime of product usage shifts risk more evenly between buyer and seller. For the provider, subscriptions enable a more predictable revenue stream paid on a predetermined basis over the course of an engagement or contract.

For enterprises based on a subscription model or using this approach extensively and those primarily involved with B2C business, the predominant technology and process challenge is to provide a direct method for customers to initiate and modify service plans and orders. Complexity arises in the need to scale the number of subscribers. Contrast that with business-to-business enterprises with far fewer customers but more complex, multiple product and service orders and individually negotiated prices.

With enterprises for whom subscription pricing is new, and in addition to a predominately one-time sale, it is important to ensure that new subscription models are incorporated in such a way that it appears seamless to the subscriber, avoiding duplicate bills and payments, or different ways to purchase depending on the product or service.

Subscription management is the process for a subscriber as an existing or new customer to be engaged with a seamless experience from the selection, configuration, order, contract, billing, payments and fulfillment. It supports an organizational need for managing subscription revenue and the recognition of the subscription, but also the operations and life cycle, including the automation and workflow, analytics and reporting, integration with other systems, management of the data, loyalty and incentives and the pricing of those programs

Effective subscription management needs to support a variety of business models and use cases.

Effective subscription management systems must support a variety of business models and use cases, either with functional capabilities of their own or with the ability to integrate with existing systems, or additional third-party providers. For enterprises who are not digitally native (those enterprises that started or have been using subscription pricing for much of the time) existing ERP and customer relationship management systems will have been implemented to handle the existing one-time sales transaction. Adding subscription models will require additional systems and processes that must work in conjunction with the current systems. The complexity of the underlying systems should not be seen by the customer who expects a seamless subscriber experience. Systems must interoperate with existing systems, whether a new system becomes the consolidated subscription management or billing system or whether that system generates the necessary information for an existing system to handle the process. This extends to customer and product master data that is either synchronized against an external system or managed within the new system.

One-time sales models change relatively infrequently, especially when it comes to the price to be charged. Likewise, product lists and listings are somewhat static. However, the subscription model and digital products lend to frequent changes in price and to product and services, especially around combination bundles requiring subscription catalogs that need flexibility and simplicity in how they are managed.

Effective subscription pricing changes must go beyond the traditional repeating flat-fee model and consider incorporating usage- or consumption-based pricing for optimal subscription management. In this model, the eventual cost charged is dependent on how much was consumed in the preceding period. The price is decided using a formula for whatever is being measured, such as the number of transactions to derive what will be billed for that period. Depending on the product or service being purchased, this pricing model can further redress the balance of risk between buyer and seller, with the buyer only paying for what was used.

Pricing formulas for usage models can be quite complex dealing with pricing tiers that are invoked when certain volume levels are reached, either incrementally or on the accumulated total. In addition, multiple attribute pricing can consider several factors associated with the transaction: what time of year, month, week or day, what geographic location, buyer characteristics or what combination of products and services.

By 2026, increased adoption of the subscription business model will lead to more complex pricing, rating and billing and if not successfully addressed, will diminish the customer experience and restrict growth.

Usage pricing may seem the most consumer friendly, but neither the buyer nor the seller can predict the charges for a particular period. The usage charges themselves could be transactions from an IoT sensor, a credit card swipe or a cloud data storage device. Traditionally, telecom providers have been some of the most onerous users of usage charging, with every call and leg of a call recorded and priced. It is one reason why many telecom providers in the U.S. moved to unlimited minutes or block pricing models, though the calls and legs are still recorded; they are visible on a bill, and they may be used to calculate third-party carrier cross charges.

Data mediation is often needed for usage transactions. Raw usage data comes from a variety of sources and in potentially different formats. As part of the mediation process, data is normalized and aggregated to the required level to price. When volumes are large, it may make sense to pre-aggregate and price on a rolling basis, then be ready to reprice if the formula is based on different pricing levels dependent on a periodic or cumulative threshold having been met. It is also sometimes necessary to pre-price outside of the system and tag the usage transactions to not be priced at all. These variations are use cases seen in real life.

One often-unrecognized need when adopting subscription management is a way to effectively account for revenue that is owed to partners.

Usage pricing also puts an added onus on the ability to project or forecast usage to give some idea to both consumer and provider as to what future charges may be. Unlike a flat fee repeating each period, usage pricing is variable. A needed feature, though not often offered as part of most subscription management systems, is the capability to forecast usage. This usage projection has multiple uses: as part of revenue forecasting, used to validate whether periodic invoices are similar to the expected amount or not and therefore need auditing, as part of customer churn predictions, and as part of customers being able to track expense against budget, especially the cumulative trend.

An often-unrecognized need when adopting subscription management is a process to effectively account for revenue that is owed to partners who are either providing a complementary service or product as part of the overall subscribed offering. Historically, partnerships have described a reseller arrangement, but for a growing number of industries, there is a trend for enterprises to develop deeper relationships within a partner ecosystem. These partner ecosystems can take different forms, but enterprises are beginning to recognize that to compete for and to retain customers, offering complementary products and services can enable smaller businesses to compete with larger ones by bundling products and services without having to necessarily build or buy every aspect. The mantra “build or buy” is now extended to “build, buy or partner.”

Partner ecosystems offer unique accounting challenges, such as calculating a commission or markup from cost or parsing costs for bundles that include products, services or offers originating from third parties. In the consumer world, this could be a nutrition service or vitamin products to go alongside a gym membership. Or it could be a rental car company that doesn’t own all its cars and leases them from a third party. That same rental car company pays out commissions on rental reservations originated from partners such as airlines, hotels and travel sites.

For many enterprises, existing processes for accounting for third-party relationships are thought of as accounts payable or back-office functions. But, as third-party partnerships and ecosystems deepen, more complex formulas for revenue allocation will be developed and will need to be linked to the same complex pricing models that are used to calculate customer charges.

For a more efficient approach and one that lends itself to a better understanding of performance and profitability, revenue allocations to third parties should be treated as the other side of payments received. To handle this, the system should have the concept of contracts that not only describe the terms of the purchase of products and services but also the terms of any revenues to be allocated to a third party. This accommodates any business where there are royalties or other payments due from third-party licensing arrangements.

Contract management is an important component of subscription management. Whether the contract life cycle is managed within the system or, more likely, is digitally represented within, any changes to orders, subscription plans or contract terms should be seamlessly executed so that proration, adjustments or refunds are processed when the change occurs.

The impact subscription-based pricing has on revenue recognition is significant as most of the revenue occurs in the future and is not realized until a qualifying event occurs.

The impact subscription-based pricing has on revenue recognition is significant as most of the revenue occurs in the future and is not realized until a qualifying event occurs. This could be upon delivery, when a payment is made or in the event of services when delivery milestones are met. Although it is feasible to deal with this entire process as part of typical ERP financial accounting, the events that drive recognition are more closely linked to those that are captured and managed in a subscription management system. More advanced applications have the capabilities to compute the accounting adjustments from data and events, utilizing a sub ledger to generate the necessary journal adjustments to be transferred to the primary general ledger.

Contemporary subscription management applications require extensive capabilities to integrate data and processes with existing customer systems. Master data for customers, products, pricing and vendors, if not managed within the application, must be synchronized with minimum latency. This also applies to contract and order information to ensure that customer amendments are reflected in the billing process within the billing period that the changes occurred. Entries need to be integrated into accounts receivables, payables and the general ledger for revenue recognition purposes. Bill presentment, payment processing and collections are areas that also require integration. And integration should be intelligent, with notifications and alerts made available for any errors or issues that may occur and with functionality that supports remote manual remediation if automatic remediation is not possible. Integration and automation go hand-in-hand, with the aim of as much through processing as possible to remove the need for manual intervention, the result of which is routine processes that can run remotely, affording subscribers a frictionless experience.

Integration and automation go hand-in-hand, with the aim of as much through processing as possible to remove the need for manual intervention.

While the aim is to automate future processes as much as possible, reporting what has already happened is still useful for auditing purposes. There are two types of reporting needs: operational and analytical. Operational reporting is at the detail- and transaction-level and is used for the purpose of validation and audit rather than analytics. Most commonly, reporting comes directly from the stored data with limited filtering or aggregation. Reports can be scheduled with delivery either to be printed or as a comma-separated values file to view via a spreadsheet or other personal productivity tool. Analytic reporting is for the purpose of understanding customer behavior and staff performance. Filtered, aggregated and cross-tabbed, this data is either presented as dashboards or drillable tables from within the application or through common business intelligence tools via a customer’s own data warehouse or a third-party cloud-based analytic data warehouse offering.

Software providers in the subscription management market space are now including more advanced analytic and predictive capabilities that utilize artificial intelligence techniques such as machine learning. Suggested collection strategies for overdue and delinquent accounts or detection of passive churn events such as an out-of-date credit card on file or invalid address are examples of these capabilities. Software providers have been slow to roll out value-added offerings that can recommend additional monetization opportunities, such as pricing optimization or plan and bundle options.

Overall, software providers recognized that non-digitally native companies want to supplement core one-time sales business with additional pricing and revenue models such as subscription and usage with complementary products and services. Even some digitally native customers are investigating adding physical goods to complement digital products.

While subscription management is used in the title of this survey and report, for most enterprises, it is no longer just about subscription management. Instead, enterprises are considering all the different types of modern pricing and revenue strategies available beyond flat-fee subscriptions. For many industries, this is about developing additional monetization opportunities and generating revenue streams that complement a core business. A past example is a well-known German car manufacturer’s announcement of offering heated seats on a subscription basis; the capability exists in every seat, and a consumer chooses when they wish to take advantage of it via a monthly payment.

In our view, the real focus is mixed pricing and revenue models. For enterprises new to mixed pricing, support is in the context of existing business models and systems. Enterprises have the option to use current billing systems that are typically part of the accounting and finance tech stack, customer relationship management system, homegrown systems, a mixture of manual processes and personal productivity tools, or can look to the software providers covered in this report.

How the new subscription system integrates with existing systems and processes is key as it is essential to have a unified subscriber experience across the subscription, order, selection and billing processes.

Although our methodology is to assess only software provider’s current products and roadmap, as the buyer, enterprises should ensure that any application being considered is capable of not just satisfying the needs of today and the future. One technology area that many providers are actively investigating is how predictive and generative AI can enhance internal operations to support a better customer experience. Examples of early AI use include employing AI to create effective strategies to deal with overdue payments to minimize expensive manual recovery operations. More generally, new assistant and co-pilot capabilities reframe how to interact with applications to improve personal productivity.

How the new subscription system integrates with existing systems and processes is key as it is essential to have a unified subscriber experience across the subscription, order, selection and billing processes. Regardless of how product lines are organized internally, the process should never be visible to the subscriber. As such, it may be beneficial to continue utilizing existing invoicing and payment collections while feeding in additional billing lines from new pricing models. This can be reversed over time, as the proportion of overall business represented by newer pricing shifts grows. Most modern systems can efficiently deal with all types of pricing and revenue models at scale, unlike typical finance and accounting systems.

Enterprises should also consider whether the business could benefit from deepening partner relationships to offer customers additional and complementary products and services to customers to encourage more sustained engagement. If this is the case, ensure the applications being investigated have these capabilities as part of the standard offering and not as a work-around.

When it comes to data and analytics, enterprises should understand how a software provider delivers capabilities to not just update and automate existing processes, but also how providers use the data generated from these processes to better identify options to improve and enhance the customer experience. Assess whether providers offer any advanced techniques to aid in predicting churn and projecting revenue, including usage, and how these capabilities are presented. Do providers have capabilities to help enterprises test new products and services, and if successful, to then easily operationalize and incorporate those offerings for a broader market?

The right application that fits not just early forays into new revenue models but also scales with an enterprise’s ambitions will enable that enterprise to continually meet customer expectations while ensuring financial integrity and compliance, and to continue to build and grow a sustained, profitable business.

As part of this Buyers Guide, we have evaluated the capabilities of the Subscription Management providers against the following major capability sections:

1. The Subscriber Experience
2. Managing Subscriptions
3. Loyalty and Rebates
4. Data Mediation
5. Pricing and Rating Methods
6. Revenue Allocation Computation for Third Parties
7. Payments In—Billing
8. Payments Out—Revenue Allocation
9. Payment Accepting Systems
10. Contract/Order Management and Adjustment
11. Dunning and Collections
12. Bulk Updates
13. Revenue Recognition
14. Automation and Error Handling
15. Operational Reporting
16. Analytical Reporting

To be considered, providers should have a minimal ability to satisfy 11 out of these 16 subcategories. Whether focused on B2B, B2C or support both, there are some basic expectations for functionality to support today’s business. Many enterprises need more than standard subscription management support, but also support for other pricing models such as one time, usage and milestone-based projects.

This research evaluates the following software providers that offer products that address key elements of both B2B and B2C Subscription Management as we define it: Conga, LogiSense, Oracle, Salesforce and Zuora.

This research-based index evaluates the full business and information technology value of subscription management software offerings. I encourage you to learn more about our Buyers Guide and its effectiveness as a provider selection and RFI/RFP tool.

We urge organizations to do a thorough job of evaluating subscription management offerings in this Buyers Guide as both the results of our in-depth analysis of these software providers and as an evaluation methodology. The Buyers Guide can be used to evaluate existing suppliers, plus provides evaluation criteria for new projects. Using it can shorten the cycle time for an RFP and the definition of an RFI.

The Buyers Guide for Subscription Management in 2024 finds Zuora first on the list, followed by Oracle and Salesforce.

Software providers that rated in the top three of any category ﹘ including the product and customer experience dimensions ﹘ earn the designation of Leader.

The Leaders in Product Experience are:

• Zuora
• Oracle
• Salesforce

The Leaders in Customer Experience are:

• Zuora
• Oracle
• Salesforce

The Leaders across any of the seven categories are:

• Oracle, Salesforce and Zuora, which has achieved this rating in seven of the seven categories.

As part of the Subscription Management Platforms Buyers Guide, we have evaluated the capabilities of the Subscription Management providers against their ability to support platform capabilities. Platforms typically support extensive integration, intelligent workflow and processes and make critical processes available as a service that can be accessed via APIs. The following major capability sections were evaluated based on their need to support a Platform:

1. Managing Subscriptions
2. Data Mediation
3. Pricing and Rating Methods
4. Payments In—Billing
5. Payments Out—Revenue Allocation
6. Payment Accepting Systems
7. Contract/Order Management and Adjustment
8. Automation and Error Handling
9. Operational Reporting
10. Analytical Reporting

This research evaluates the following software providers that offer products that address key elements for a Subscription Management Platform as we define it: Aria Systems, BillingPlatform, Certinia, Chargebee, Cleverbridge, Gotransverse, Kibo, LogiSense, Maxio, OneBill, Oracle, Recurly, Salesforce, SOFTRAX, Stripe, VeriFone, Zoho and Zuora.

The Buyers Guide for Subscription Management Platforms in 2024 finds Zuora first on the list, followed by Oracle and BillingPlatform.

Software providers that rated in the top three of any category ﹘ including the product and customer experience dimensions ﹘ earn the designation of Leader.

The Leaders in Product Experience are:

• Zuora
• BillingPlatform
• Oracle

The Leaders in Customer Experience are:

• Zoho
• Zuora
• Oracle

The Leaders across any of the seven categories are:

• Zuora, which has achieved this rating in seven of the seven categories.
• BillingPlatform and Oracle in four categories.
• Salesforce and Zoho in two categories.
• Aria Systems and Certinia in one category.

As part of the B2B Subscription Management Buyers Guide, we have evaluated the capabilities of the Subscription Management providers against the following major capability sections:

1. The Subscriber Experience
2. Managing Subscriptions
3. Loyalty and Rebates
4. Data Mediation
5. Pricing and Rating Methods
6. Revenue Allocation Computation for Third Parties
7. Payments In—Billing
8. Payments Out—Revenue Allocation
9. Payment Accepting Systems
10. Contract/Order Management and Adjustment
11. Dunning and Collections
12. Bulk Updates
13. Revenue Recognition
14. Automation and Error Handling
15. Operational Reporting
16. Analytical Reporting

To be considered, providers should have a minimal ability to satisfy 11 out of these 16 subcategories. Whether focused on B2B, B2C or support both, there are some basic expectations for functionality to support today’s business. Many enterprises need more than standard subscription management support, but also support for other pricing models such as one time, usage and milestone-based projects.

This Buyers Guide evaluates the following software providers that offer products that address key elements of B2B Subscription Management as we define it: AdvantageCS, Aria Systems, BillingPlatform, Certinia, Conga, Gotransverse, LogiSense, Maxio, NetSuite, OneBill, Oracle, RecVue, Sage Intacct, Salesforce, SAP, SOFTRAX and Zuora.

The Buyers Guide for B2B Subscription Management in 2024 finds Zuora first on the list, followed by BillingPlatform and Oracle.

Software providers that rated in the top three of any category ﹘ including the product and customer experience dimensions ﹘ earn the designation of Leader.

The Leaders in Product Experience are:

• Zuora
• BillingPlatform
• Oracle

The Leaders in Customer Experience are:

• Zuora
• Oracle
• Salesforce

The Leaders across any of the seven categories are:

• Zuora, which has achieved this rating in seven of the seven categories.
• Oracle in five categories.
• BillingPlatform in four categories.
• Salesforce in three categories.
• Aria Systems and Certinia in one category.

As part of the B2C Subscription Management Buyers Guide, we have evaluated the capabilities of the Subscription Management providers against the following major capability sections:

1. The Subscriber Experience
2. Managing Subscriptions
3. Loyalty and Rebates
4. Data Mediation
5. Pricing and Rating Methods
6. Revenue Allocation Computation for Third Parties
7. Payments In—Billing
8. Payments Out—Revenue Allocation
9. Payment Accepting Systems
10. Contract/Order Management and Adjustment
11. Dunning and Collections
12. Bulk Updates
13. Revenue Recognition
14. Automation and Error Handling
15. Operational Reporting
16. Analytical Reporting

To be considered, providers should have a minimal ability to satisfy 11 out of these 16 subcategories. Whether focused on B2B, B2C or support both, there are some basic expectations for functionality to support today’s business. Many enterprises need more than standard subscription management support, but also support for other pricing models such as one time, usage and milestone-based projects.

This Buyers Guide evaluates the following software providers that offer products that address key elements of B2C Subscription Management as we define it: Chargebee, Cleverbridge, Conga, FastSpring, Kibo, LogiSense, Oracle, Ordergroove, Paddle, PayPro Global, Recurly, Salesforce, sticky.io, Stripe, VeriFone, Zoho and Zuora.

The Buyers Guide for B2C Subscription Management in 2024 finds Zuora first on the list, followed by Oracle and Salesforce.

Software providers that rated in the top three of any category ﹘ including the product and customer experience dimensions ﹘ earn the designation of Leader.

The Leaders in Product Experience are:

• Zuora
• Oracle
• Salesforce

The Leaders in Customer Experience are:

• Zoho
• Zuora
• Oracle

The Leaders across any of the seven categories are:

• Zuora, which has achieved this rating in seven of the seven categories.
• Oracle in six categories.
• Salesforce in four categories.
• Zoho in two categories.
• Kibo and Stripe in one category.

The overall performance chart provides a visual representation of how providers rate across product and customer experience. Software providers with products scoring higher in a weighted rating of the five product experience categories place farther to the right. The combination of ratings for the two customer experience categories determines their placement on the vertical axis. As a result, providers that place closer to the upper-right are “exemplary” and rated higher than those closer to the lower-left and identified as providers of “merit.” Software providers that excelled at customer experience over product experience have an “assurance” rating, and those excelling instead in product experience have an “innovative” rating.

Note that close provider scores should not be taken to imply that the packages evaluated are functionally identical or equally well-suited for use by every enterprise or process. Although there is a high degree of commonality in how organizations handle subscription management, there are many idiosyncrasies and differences that can make one provider’s offering a better fit than another.

Our firm has made every effort to encompass in this Buyers Guide the overall product and customer experience from our subscription management blueprint, which we believe reflects what a well-crafted RFP should contain. Even so, there may be additional areas that affect which software provider and products best fit an enterprise’s particular requirements. Therefore, while this research is complete as it stands, utilizing it in your own organizational context is critical to ensure that products deliver the highest level of support for your projects.

You can find more details on our community as well as on our expertise in the research for these Buyers Guides:

Subscription Management

Subscription Management Platforms

B2B Subscription Management

B2C Subscription Management

Regards,

Stephen Hurrell