Cloud Billing Expert Comments on Microsoft’s Shift Towards a Recurring Revenue Model

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Microsoft appears to be responding to competitive pressures in the rapidly evolving software marketplace as it joins other software companies that are moving to a recurring revenue model. Aria Systems weighs in on what appears to be Microsoft transitioning towards more diverse “hybrid” revenue combining single-transaction and subscription revenue models.

Though the bulk of Microsoft’s revenue still comes from single transaction purchases of their Windows operating systems and Office products, the growth potential is clearly in their fast-growing ‘recurring revenue’ product line.

Cloud billing expert Aria Systems, helping businesses transform billing into a strategic advantage, today recognized Microsoft’s recurring revenue product Lync recently hitting the $1 billion revenue threshold in fiscal year 2013 for the first time, a 30% increase year over year. Along with the double-digit growth of their Azure and Office 365 products, this is considered a significant milestone in Microsoft’s move towards more recurring revenue sources and away from their traditional revenue model based on single-transaction revenue.

“It seems Microsoft sees the writing on the wall for the traditional PC software sector as the market continues to gravitate towards cloud-based subscription services, such as Google Apps,” said Andy Eliopoulos, Sr. Director of Product Marketing, Aria Systems. “Though the bulk of Microsoft’s revenue still comes from single-transaction purchases of their Windows operating systems and Office products, the growth potential is clearly in their fast-growing ‘recurring revenue’ product line. They appear to be gradually repositioning themselves to take advantage of what a recurring revenue model can do for software sales.”

Lync is an enterprise-focused communications suite while Azure is Microsoft’s cloud platform. Office 365 is Microsoft’s foray into selling their popular “boxed” Office product in a cloud-enabled, subscription format. These models allow for more predictable revenue for Microsoft and the ability to offer bug fixes as well as feature upgrades as they are ready to be released, rather than having to wait for the next major revision, a schedule change that Microsoft and its competitors see as necessary. As part of the transition, Microsoft will continue to sell boxed copies of Office while also offering the Office 365 subscription version, providing more product flexibility for the Microsoft customer base while offering a smooth transition for Microsoft’s new “hybrid” revenue stream.

Companies often experience difficulty shifting their revenue model so dramatically. Many companies attempt to preserve their core revenue models, downplaying newer models that they fear will cannibalize their existing stream. But as Apple CEO Tim Cook pointed out earlier this year, “Our core philosophy is to never fear cannibalization. If we don’t do it, someone else will.” Microsoft, which once dominated the PC market but has of late seen that market decline, seems determined to adopt the philosophy of longtime rival Apple before it’s too late.

“I agree with Tim Cook when he says that short term fears of cannibalization should never preclude companies from innovating around product and service offerings,” said Tom Dibble, CEO, Aria Systems. “Aria is all about helping traditional technology companies successfully make a shift into the recurring world so that they can ultimately drive higher revenue and market share.”

Many companies have a great opportunity to keep up with rapidly changing market conditions by adopting a flexible approach to how they offer their products to their customers. The software industry, in particular, is experiencing a sea change in how they price, package and deliver their products. This, in turn, creates opportunity for companies like Aria to facilitate that change.

Looking for clarity about which recurring revenue model may work best for your business? Download the new e-paper Picking the Right Recurring Revenue Model.

About Aria Systems
Aria Systems delivers the full power of subscription commerce to transform business by creating new opportunities, improving customer relationships and providing more revenue predictability. The Aria Subscription Billing and Management Platform was chosen by brand name companies such as Pitney Bowes, AAA NCNU, Experian, Red Hat, Ingersoll Rand, EMC, VMware, and HootSuite to evolve their company’s subscription businesses while delivering outstanding customer experiences. Visit http://www.ariasystems.com or call 1.877.755.2370.

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Marie Martin
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