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The Rise of the Subscription Economy

The subscription economy has reshaped traditional revenue models across industries worldwide. Establishing recurring revenue from subscription-based services and products has gained significant traction, providing sustained customer engagement and ongoing customer value, and leading to more predictable revenue. 

The global shift toward subscription models is a substantial movement, integrating deeply with digital transformation, and the cloud migration that many companies are undergoing.

The subscription model aligns perfectly with cloud services, allowing companies to offer scalable, accessible, and continuously updated solutions for almost all business processes that can keep pace with continuous technological advancements and changing market needs.

In this article IgniteSAP looks at the importance of the subscription economy to SAP consulting and how SAP consultants can adapt.

SAP and Subscription-Based Offerings

SAP has recognized the strategic importance of the subscription model, particularly in its connection with cloud-based solutions like SAP S/4HANA Cloud.

This transition was strategically timed to capitalize on the growing demand for more flexible, scalable, and maintenance-free software solutions. SAP’s move to a subscription-based model also allows them to offer continuous improvements and support.

As companies adopt SAP’s subscription services, consultants must adjust their strategies to focus more on long-term client relationships and ongoing service excellence, rather than one-time project implementations. 

This demands a new set of skills and a deep understanding of subscription dynamics to effectively guide clients through their transformation journeys.

So how can SAP consultants ensure they have the expertise to help clients maximize the benefits of a subscription-based model, while navigating the challenges it presents?

Global Trends in Subscription Models

Almost all sectors have seen enterprises using subscription-based pricing as part of their business model.

According to Forbes, the global subscription economy market size is projected to be $1.5 trillion in 2025, up from $650 billion in 2020, showing the appeal of this business model. 

Adobe, which transitioned to a subscription model with its Creative Cloud services, achieving remarkable revenue growth and customer retention, and Microsoft has seen substantial success with its Office 365 suite, now rebranded as Microsoft 365, which serves millions of subscribers globally.

The subscription model is not limited to software services, it can be applied to almost any business. Examples include many well known entertainment companies like Netflix and Spotify. Uncooked meal kits are delivered to subscribers to Hello Fresh in 18 countries, and automotive companies like Volvo are now offering a subscription service, allowing customers to lease cars on a monthly basis without a long-term commitment.

SAP’s Strategic Shift and Subscription Offerings

SAP has used this model to enhance its market position and meet the evolving needs of its clients.

One of the core offerings in SAP’s portfolio, SAP S/4HANA Cloud, uses a subscription model. This allows customers to enjoy the latest innovations in ERP without the traditional upfront costs of on-premise software.

SAP S/4HANA Cloud is providing clients with a competitive edge by facilitating real-time analytics, enhanced transaction capabilities, and improved operational efficiency.

SAP’s industry-specific solutions within the S/4HANA suite, like the SAP Cloud for Retail or SAP Cloud for Banking, enables tailored subscription services that meet unique sector needs, enhancing customer satisfaction and retention.

Impact on SAP Consulting Practices

The shift to subscription models significantly alters the financial dynamics within SAP consulting practices: through the payment structure for SAP services, and also through provision of solutions to clients to adopt subscription models in their own businesses using SAP.

So, effectively all transactions in the SAP ecosystem can be restructured to a subscription model: between SAP customers and SAP for software services, SAP customers and SAP consultancies for SAP consulting services, and also between businesses who are SAP customers and their own customers, using services like SAP BRIM (billing and revenue innovation management), which is an add-on for Rise with SAP customers to set up subscriptions.

Consultants are needed to guide SAP customers through establishing this new set of transactional relationships. 

Traditionally, SAP projects were billed on a milestone basis, with large sums invoiced upon the completion of specific phases. With subscription models, billing for SAP customers occurs on a monthly or annual basis: providing a more predictable revenue stream for SAP but at lower transaction sizes per billing cycle for customers.

This change demands that SAP consultants focus more on maintaining high customer satisfaction to ensure renewal and prevent churn.

Client relationships under subscription models are inherently more continuous and interactive. Consultants are expected to engage regularly with clients, monitoring their satisfaction and adjusting services to address their evolving needs.

This ongoing relationship encourages deeper trust and partnership but also requires consultants to be more responsive and proactive in identifying potential issues before they escalate.

Adjustments in SAP Service Delivery

To effectively support subscription-based clients, SAP consulting practices must adapt their service delivery models.

One adjustment is the shift towards providing ongoing support and continuous value assurance. Consultants also need to develop expertise in managing and optimizing cloud-based SAP environments, such as SAP S/4HANA Cloud, which are updated regularly with new functionalities.

This requires a solid understanding of each update and its potential impact on client operations, ensuring that clients can quickly leverage new features for competitive advantage. Consequently, consultants are required to keep up to date on SAP developments to advise clients on the latest features of each release.

Building a consultancy that can support the subscription model also involves training consultants to excel in customer success roles, focusing on metrics like customer lifetime value and retention rates rather than just initial sales.

Consultancies should also consider expanding their service portfolios to include integration services, custom development, and ongoing optimization of SAP systems to cater to the continuous service demand. This strategic shift requires not only a change in skill sets but also in organizational culture, emphasizing flexibility, ongoing learning, and customer-centricity.

New Skills

So, as the subscription economy reshapes the SAP consulting landscape, what new skills must consultants develop to navigate these changes effectively?

Proficiency in cloud technologies is essential. This includes understanding the architecture, deployment, and scalability of cloud services, as well as security and compliance issues that are central concerns in a cloud environment.

Consultants need to master the intricacies of subscription management. This involves knowledge of billing cycles, renewal triggers, customer lifecycle management, and churn reduction strategies.

With a focus on long-term customer relationships, SAP consultants also need to be adept at using and interpreting customer success metrics. This includes engagement scores, customer health indices, and usage statistics to ensure that clients are receiving continuous value from their SAP solutions, and to preemptively address any areas where improvements can be made.

Training Programs and Certifications

To acquire and refine these skills, several training programs and certifications are recommended for SAP consultants:

SAP Certified Application Associate – SAP S/4HANA Cloud: This certification provides consultants with a deep understanding of SAP S/4HANA Cloud and equips them to handle its applications effectively in a real-world environment. It covers essential areas such as best practices for core business processes and configuration.

Cloud Infrastructure and Security Training: Programs such as AWS Certified Solutions Architect or Microsoft Certified: Azure Fundamentals, offer foundational and advanced knowledge in cloud infrastructure and security. These certifications are useful for consultants needing to support SAP applications on these platforms.

Customer Success Management Training: Courses offered by institutions like the Customer Success Association or through platforms like LinkedIn Learning on customer success management can be valuable. These programs teach how to measure and analyze customer engagement and success metrics effectively.

Career Path Changes

This shift is not just changing the technical skills required, but also the roles and opportunities within the field:

Along with SAP Cloud Platform specialists, there is an increasing demand for SAP consultants who can fill customer success roles. These roles focus on ensuring that clients achieve their desired outcomes using SAP’s subscription services, requiring a mix of technical know-how and customer relationship skills.

Subscription Strategy Analysts are also needed to analyze and optimize subscription models for SAP clients, helping to refine pricing strategies and enhance customer retention through data-driven insights.

Being open to changing roles and responsibilities is crucial. Consultants might need to shift from traditional project management or implementation roles to ongoing support and optimization roles that are more prevalent in subscription models.

Advice for Current SAP Consultants

So how can consultants prepare to meet these new customer requirements?

The tech field evolves rapidly, and the subscription economy, along with the cloud shift, introduces new complexities and innovations at a fast pace. SAP consultants should commit to ongoing education, whether through formal certifications, workshops, or self-study, to stay current.

Given the ongoing nature of client relationships in subscription models, soft skills such as communication, negotiation, and customer service are as important as technical proficiency. Building strong client relationships is key to creating trust and ensuring subscription renewals.

Building a strong professional network can provide insights into industry trends and open up new opportunities.

The Future of SAP and Subscription Models

As SAP continues to deepen its investment in subscription-based models, the company’s strategy is likely to evolve further, shaping the future landscape of enterprise software.

Looking ahead, SAP may increase its focus on sector-specific solutions, for the unique needs of industries such as retail, and manufacturing with bespoke subscription services.

Additionally, SAP will use emerging technologies like AI and machine learning more extensively within its subscription models. These technologies can optimize subscription management processes, improve customer experiences, and personalize service offerings, increasing value for clients and creating a competitive edge.

The effects of SAP’s shift to subscription models extend beyond the company itself, influencing the entire ecosystem, including partners, third-party vendors, and associated industries.

Third-party vendors will need to align their offerings more closely with SAP’s subscription services. This could mean developing complementary tools or services that enhance the SAP user experience or address gaps in subscription offerings.

As the demand for new skills increases, training providers and consulting firms will find significant opportunities in helping current SAP professionals and new entrants adapt to the subscription economy.

The transformation towards a subscription-based economy represents a profound shift in how businesses conceptualize and implement software solutions.

The core challenge for SAP consultants will be to develop deep technical expertise and the agility to adapt to new business models and client expectations. This will involve keeping pace with technological advancements but also refining interpersonal and strategic skills for a subscription-driven market.

If you are an SAP professional looking for a new role in the SAP ecosystem our team of dedicated recruitment consultants can match you with your ideal employer and negotiate a competitive compensation package for your extremely valuable skills, so join our exclusive community at IgniteSAP.