Shifting business model that has become a trend mostly in the IT industry. Rather than just providing sales and support companies move towards a subscription based approach with much better support.
From my understanding of providing “As a Service” is that
- there is a fixed source of recurring revenue compared to a one time sale, although looking at the current business it might have never been a one time sale.
- They would also benefit on scalability as it is easier to adjust resources(infrastructure) to cater to the growing needs(this is often seen in cloud solution provider and other subscription based services).
- This in turn would increase the overall profits, even though (one time)sales maybe higher, in a continual service the subscription cost leads to higher profits over time(depends on the product) specially with the customer base of Redington Ltd.
There is good and bad in everything here as some downsides:
- initial investment to infrastructure to get the business model up and running(in likes of new software and customer support etc…)
- adapting to the market dynamics and customer preferences, some customers(smaller ones) may not agree to subscription based services.
Overall impact on profits is subjected to how effectively the company transitions with its execution plan.
Future concalls/investor presentations will probably highlight more on this.
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