Dean Derhak, Product Director at SAi, explores the issues for RIP suppliers and customers. In April 2014, SAi introduced a subscription model for its leading sign making software package Flexi.
The ability to subscribe to powerful software programs on a monthly basis, funded from revenue rather than the major capital investment required for an outright purchase, is becoming both more common and popular. With advantages for wide-format print/sign providers, software developers and dealers, many see this method of software delivery as the future business model, but does it really make economic sense?
The model is simple: wide format print and sign making companies can access a fully-loaded and absolutely up-to-date version of RIP software for about 1.25% of the full purchase price. This makes the break-even period on the ‘traditional’ buying option typically around seven years.
In reality, the time is probably longer, since during that period a new version of the software, with more features and better performance, will probably have been released. There is also a good chance that the customer may have bought a new computer with a new version of computer operating software. Upgrading to a new version of RIP software currently costs roughly 15% of the original cost. That additional investment would mean that the actual break-even for those with subscriptions is about eight years. With the subscription, customers always have the latest version, so there’s no need to upgrade. This ensures optimal performance and competitiveness, at a low price that can be paid as a revenue expense, rather than a capital investment.
For signmakers, investing in new RIP software frequently corresponds with investing in new equipment, so available cash is likely to be lower than at other times. Our own research showed that 31% of our users said they preferred buying a subscription instead of a full software package. However, of those planning to buy within six months, that figure went up to 48% in favour of subscriptions, and when it came to signing the cheque, more than 50% opted for a subscription.
With typical software subscription models, the users on subscription grows slowly as customers are attracted by the lower price and always having the latest features. In the case of our own software subscription offering, within the first two months we attracted several hundred more wide-format print/sign providers than we had projected. We also noticed the cost of sales is considerably reduced, too, and the buying becomes automated. Packaging, shipping and conventional invoicing is also eliminated. Once in place, the subscription model is sustainable and scalable, with the user able to add licences immediately as they require.
RIP software suppliers need cash to support this change and it will be interesting to see which companies are prepared to make that commitment. Perhaps smaller, privately owned software companies will be more readily able to implement the model than large public companies that might find the process and expenditure more difficult to justify. In the end, even the large companies may be forced by the market to offer subscriptions, in the way the music industry has had to move from CDs to downloading MP3s, to streaming.
Established RIP software providers will likely have a number of customers who are using very old versions of their software. Within SAi, we expect the subscription model to be very attractive to them, as investing in a new traditional software package is something they’ve already demonstrated they are unwilling to do. Similarly, new wide format providers and signmakers are finding subscriptions attractive, as it is likely that they are making equipment purchases at the same time and want to control their costs.
There are no weekends or holidays on the Internet; software can be downloaded 24/365. Neither is RIP provider subscription income affected by traditional sales cycles and patterns, so their revenue is more stable. Their sales efforts can be more focused on software development and marketing and not driven by sales targets.
Leading RIP software suppliers will be sensitive to customer diversity and continue to give them a choice between purchasing and subscribing. However, subscriptions offer software providers a steadier financial foundation while delivering a game-changing business model for their customers.