For entrepreneurs, choosing the right software business model is essential for a successful software company. There are a variety of models to choose from, and each has its own benefits and drawbacks. In this article, we will explore five common software business models: SaaS, Freemium, Pay Per Use, Licensing, and Subscription.
1. Software as a Service (SaaS)
Software as a Service (SaaS) is a business model in which software is offered on a subscription basis. Customers can access the software from a web browser or mobile app. This type of business model is often used by companies that offer cloud-based services.
Some common examples of SaaS businesses are Salesforce, Google Apps, and Adobe Creative Cloud. These companies offer a wide variety of software products that customers can access anywhere in the world.
Salesforce is a customer relationship management (CRM) software company that offers its software on a subscription basis. Customers can use Salesforce to manage their customer data, sales pipeline, and marketing campaigns.
Google Apps is a suite of productivity tools that includes Gmail, Calendar, Drive, and Docs. Customers can subscribe to Google Apps for Business to get access to these tools.
Adobe Creative Cloud
Adobe Creative Cloud is a subscription service that gives users access to a variety of Adobe software products, such as Photoshop, Illustrator, and InDesign.
The Freemium business model is similar to the SaaS model, but with one key difference: some features of the software are available for free, while other features must be paid for. This allows customers to try out the software before committing to a subscription.
Some common examples of Freemium businesses are Dropbox, Evernote, and Skype. These companies offer free basic versions of their products, with premium features available for a monthly subscription.
Dropbox is a file storage and synchronization service offering a basic free plan with 2 GB of storage. Customers can upgrade to a premium plan for more storage and additional features, such as offline access and advanced security options.
Evernote is a note-taking app that offers a basic free plan with limited features. Customers can upgrade to a premium plan to access more features, such as offline access and increased storage.
Skype is a voice-over-IP (VoIP) and video-calling service that offers a basic free plan that allows users to make calls to other Skype users. Customers can upgrade to a premium plan to make calls to landlines and mobile phones.
3. Pay Per Use
The Pay Per Use business model is similar to the Freemium model, but with one key difference: customers only pay for the features they use. This allows customers to customize their experience and only pay for the features they need.
Some common examples of Pay Per Use businesses are Amazon Web Services (AWS) and Microsoft Azure. These companies offer various cloud-based services that customers can pay for on a per-use basis.
Amazon Web Services
AWS is a cloud-computing platform that offers various services, such as storage, databases, and networking. Customers can pay for these services on a per-use basis, with no long-term commitment.
Azure is a cloud-computing platform that offers a variety of services, such as storage, databases, and web applications. Customers can pay for these services on a per-use basis, with no long-term commitment.
The Licensing business model is a type of pay-for-use model in which customers purchase a license to use the software. This license can be for a one-time fee or on a subscription basis.
Some common examples of businesses that use the licensing model are Autodesk, Microsoft Office, and Adobe Creative Suite. These companies sell licenses to use their software products on a one-time or subscription basis.
Autodesk sells licenses to use its software products on a subscription basis. Customers can subscribe to Autodesk products for a monthly or annual fee.
Microsoft Office is a suite of productivity software that includes Word, Excel, PowerPoint, and Outlook. Customers can purchase a license to use Microsoft Office on a one-time or subscription basis.
Adobe Creative Suite
Adobe Creative Suite is a suite of software products that includes Photoshop, Illustrator, and InDesign. Customers can purchase a license to use Adobe Creative Suite on a one-time or subscription basis.
The subscription business model is a type of pay-for-use model in which customers pay a recurring fee to access the software. This fee can be charged on a monthly or annual basis.
Some common examples of businesses that use the subscription model are Figma, Spotify, and Adobe Creative Cloud. These companies charge a monthly or annual fee for access to their software products.
Figma is a digital design tool offering monthly and annual subscriptions. The price depends on a user’s use case for Figma (design vs. whiteboarding), the number of files supported, and needed user seats.
Spotify is a music-streaming service that offers millions of songs and podcasts. Customers can subscribe to Spotify for a monthly fee.
Adobe Creative Cloud
Adobe Creative Cloud is a suite of software products that includes Photoshop, Illustrator, and InDesign. Customers can subscribe to Adobe Creative Cloud for a monthly or annual fee.
Select an Optimal Business Model
There are various software business models to choose from, depending on the type of software you’re selling and the needs of your customers. The five most common models include Freemium, Pay Per Use, Licensing, Subscription, and Advertising. Each model has unique benefits and drawbacks, so remember to choose the one that’s right for your business.