Estd 4.22.2023
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As the Principal Product Manager, Pricing & Packaging Strategy at Rubrik, Inc.; Mehul Sahni has been leading the charge to usher in a subscription based pricing model in a legacy technology market. Before Rubrik, he has been in similar roles at companies like PSafe Technology and Drop.
Mehul spoke to me on Cloud Data Management, Rubrik’s move from Perpetual Licensing to a Subscription Pricing model as well as his general POV on rolling out pricing changes effectively
The backup and recovery industry has been around for decades, and not really received the advantage of modernization from today’s technology, because, all in all, it’s a pretty unsexy thing, having database admins set up service level agreements (SLAs) to back up your data from the data center and then recover it.
Incumbents in this industry tend to sell multiple hardware products, with multiple pieces of software sold on top of this hardware, leading to multiple renewals and price changes. These make it difficult to consume and manage product, and also lead to unpredictable costs.
But this is what this industry and its customers had been used to. It’s a sticky proposition, as once you get in there and back up someone’s data, you get into their data center, multiple data center sites, five-year contracts, and more. Incumbents got used to this way, and there hadn’t been any disruption.
Rubrik’s Chief Executive Officer (CEO), Bipul Sinha was an investor at Lightspeed and Nutanix. He had a lot of insight into converged appliances, selling one piece of hardware that already had pre-installed software, a plug-and-play appliance. Nutanix was doing this for the front end, as was VMware. Bipul saw the opportunity to do this on secondary data on the backup side — and that it could be very disruptive.
And that’s exactly what it did, Rubrik went to market with just one plug-and-play appliance already with backup and recovery software. You basically paid one inclusive price for both hardware and software. This suddenly went from incumbents offering multiple devices with different renewals to a very simplified product and also a very simplified license.
The go-to market strategy resonated really well and led to our current success. Looking forward, we’re building applications on top of backup data we have for customers, such as security and compliance applications that can essentially be value-added services. ‘Backup and recovery’ is where we started, our competitive edge, but it is turning more into a data management platform altogether.
We originally went to market with a Perpetual Life-of-Device License as we were selling into backup admins, and our buyers were really used to buying hardware as one inclusive capital expenditure (CapEx) purchase.
In April 2019, we came out with a subscription pricing model. At this point, we had been selling our product for two-three years and had over a thousand customers completely on the CapEx model. We aimed to get new customers to start purchasing subscriptions. Once we penetrated this base, we would start thinking about how to get the existing installed base to switch over.
In making this change, we wanted to make pricing comparable, with a slight premium. So, if you were buying our subscription offering Rubrik Go for a minimum three-year subscription, we wanted to ensure this is comparable to that of a customer buying CapEx (Perpetual License) with three-year support.
There was a need for a slight premium here. Think about it, if you were to buy an iPhone outright, it would be cheaper than if you did a three-year lease, as there’s a little premium for that cash flow. We knew we could demand a little premium going into an annual payment model. But, for the most part, we didn’t want the price to be significantly higher to incentivize customers to go into subscription.
The more we thought about it, it was less about the price for us, and more about making a holistic program with additional benefits included in the CapEx license, to move customers to the subscription model. If pricing is equal or close, and customers see all these other benefits and features in the subscription model, they naturally choose to go that way.
While overall reception was good, a key critical decision Rubrik made was to not focus only on new customers, but also remember the existing ones that got us till here. The subscription model was always incremental to CapEx one, which wasn’t taken away to avoid alienating customers.
Without naming anyone, the industry has seen certain decisions that alienated the existing installed base; it leads to backlash and ultimately reintroduction of the old model.
To walk through the process that we took to get to our subscription model - we started with a six-month-long study to really understand the pain points for our customers in the backup and recovery space. This included interviews, surveys and even a conjoint study where customers put together their own pricing and packaging solutions. We provided a series of products, and had customers pick the top three they would want to see bundled together.
This in-depth customer study allowed us to realize the pain points:
Once we found these pain points, we needed to create a subscription program to tackle them, but keep pricing relatively in the same range as the CapEx model. If we resolved the issues, we thought hopefully everyone will start choosing this option naturally over the CapEx model. We didn’t want to do away with the CapEx model in order to not alienate anyone, but wanted to incentivize customers to the subscription model by offering more benefits.
The solutions:
All these benefits were discovered through the customer research phase, where we also asked about willingness to pay, how much they would be willing to pay more than the annual payment model, etc. The holistic program is that you want to make sure to solve the customer’s needs, especially as it’s related to your core platform.
Sales enablement and Total Cost of Ownership (TCO) building is a very critical piece to pricing and packaging. The way I see it as a product manager, is that my product is my license. I research my license and then make a roadmap for the first one. If there’s going to be a second product, I work on the upgrade license. I have to take this roadmap to the market and ensure that everybody understands how to sell it, understands the value of it, both customers and the field. Then, I also have to follow all the success metrics and tracking.
One thing we learned quickly (as soon as we launched), is that the field was starting to do a TCO against itself, positioning the CapEx model and Go model to the customer at the same time. This ends up confusing customers and slowing down the deal. If you show both models, the customer is bound to ask for a TCO for both. This ends up with a company doing a TCO against itself rather than the competitor. We nipped this in the bud.
If it is a pure evergreen customer, they’re used to subscription. If they’re buying this, or worried about refreshes and going to the cloud, they have the Operating Expense (OpEx) budget. If they’re a Federal or State, Local and Education (SLED) customer, they have to buy CapEx. They’re not interested in SaaS, nor do they have plans on moving to the cloud. If they’re an existing customer, go, CapEx, for example.
In this way, we make a Go/No-Go table. We position one model at a time, do one TCO at a time. The majority of the time, Rubrik Go would satisfy it, but in some edge cases, it doesn’t. Some at Rubrik who have earlier sold SaaS and subscription at peers like Snowflake or ServiceNow, got this point easily; but others who had to switch over, came from box-pusher type selling — at places like Dell, EMC and more. Getting these lifers in the backup and recovery market to buy into the vision and positioning of Rubrik Go as the main option, took some time. We learned from this and made it part of our pricing and packaging enablement, and go-to market for all other offerings thereafter.
It can get confusing when you start having a portfolio of products. This task falls on Pricing and Packaging (P&P) at Rubrik; at other places, it may fall on sales enablement. But I believe only a P&P strategy team can do enablement best, because there’s a lot of detail that goes into it.
Since we were still selling appliances we didn’t really need to mess with the metric for the hardware much and it remained tied to raw backend terabytes.
Selecting the value metric actually comes more in play with our SaaS products. That has no hardware involved. For instance, we have Office 365, other workloads, security or compliance products that we may be pricing as not included in our base product. In those scenarios, it’s more strategic to get the metric right. People think pricing and packaging is easy. One can figure out the price and willingness to pay, but what metric you price on, how you package it and what’s included, that requires more strategic rationale.
We first set the baseline and figured out the most comparable market in the industry, how they price, and what is the overall market consensus feedback on that. For example, Office 365 backup products include Veeam, Commvault, Metallic, 8th Point; and also just a Microsoft subscription. All the products are priced at $1 per user per month, all charge on the same metric, because that’s how Microsoft charges.
The general consensus from the market and customers is that this is a very easy metric for them to digest. Their employees are users and they know how many employees they have, how many they’re backing up, and the all-inclusive price for that. They’re trained on purchasing on that metric, since that’s how they buy their Microsoft Office 365 subscription.
There are clear indicators in this situation that the market is trained in purchasing this way. If you were to purchase on a completely different metric, it could be disruptive or counterproductive to your offering. There might be other examples where it could be really expensive. Let’s say you have a DR (Disaster Recovery) product and you look at Zerto, which charges $700-900 per virtual machine (VM). A lot of people say that gets really expensive so they only end up protecting 20 percent of workloads that are mission critical, versus the entire environment.
This could be an opportunity for disruption, because the feedback is that the licensing model is somewhat prohibitive to protecting 100 per cent of my environment. So, once market comps and their pricing are determined, one needs to do due diligence within one's own customer base. As Rubrik is also a channel-led company, this involves feedback from partners on these pricing models.
All this is an indicator of what the market is doing and if one can do something different that simplifies the licensing model. Could it be an all-inclusive, unlimited offering to make it easier for the consumer? Lastly, when you get to price, you want to benchmark your product compared to the competitors.
To take the earlier Zerto example and pricing, if you have a DR product and you’re comparing it to Zerto’s, which is the most complete DR product out there, you have to be honest and synced up with your product team. The question is how it is going to be at initial roll-out versus a year or two from then, compared to Zerto. Your street price should be relative to them for a similar PC or environment.
Do we think about packaging differently when it comes to certain customers or verticals? We definitely have different license models for commercial and enterprise customers. It all comes down to understanding your customer and how they want to purchase.
For Rubrik, commercial customers still really enjoy just a Rubrik appliance experience, shipping, plug and play. Enterprise customers think about other things, having a software-only solution to deploy on hardware or on third-party hardware they want to stick to. They have other needs that our commercial license wouldn’t meet.
So, we price our software the same across the board, because it is essentially the same. We have different licenses available for enterprise customers, as they typically demand more Enterprise License Agreement (ELA) type offerings, where they want to pick from all software offerings or want all-inclusive ones, an all-you-can-eat or deploy option for any hardware they want. They demand a lot more flexibility in what products they’re going to use, or are entitled to. They also have other requirements from discounting to pricing. So, our enterprise licensing model allows for some of that. With commercial customers, it’s really about geo-velocity and simplicity, and just getting the transaction done really fast, having them ready to go.
But commercial and enterprise might not be the only way to look at it. It also comes down to your sales motion and if that is different or customer needs are different, you can adjust packaging and licensing to allow for sales motion to happen more seamlessly.
I work pretty closely with product and sales operations in getting Stock Keeping Units (SKUs) launched correctly in our quoting system. It’s also important and gets overlooked sometimes that P&P is a key stakeholder in the User Acceptance Testing (UAT) process in the quoting system. Companies at our stage especially move with such velocity, we come up with the SKU, give the description, price and licensing schema — but in that last checkup, is it actually functioning properly in the system? Is the minimum or maximum term requirement being captured? A lot of times, UAT stakeholders are involved, like sales teams and IT, but pricing and packaging typically know the policy best.
The whole process needs to go seamlessly. One should not launch an SKU missing a certain requirement, and then four weeks later, go make a change request to IT, and claim the requirement wasn’t captured. If anybody is doing pricing operations, make sure you’re actually also going into the quoting system and your SKU is functioning properly.
It’s not fun to go and make quotes, which is why it gets overlooked despite being a key process. But at the end of the day, you just need a really good partnership between sales and product ops, and IT, and P&P, specifically, if you’re just the pricing team or the pricing operations team. You’re the PM of this licensing model or program, and the team is going out to build your product.
Treating it like that, you need open communication, weekly touching base, and prioritizing when things should be released. Look at yourself as just the owner of this product. That allows you to wear that project management hat a bit more, which you sometimes need when dealing with SKU operations.
Pricing calculators come into play for us as enablement of a “quick and dirty figuring out of price”, like a calculator. CPQ comes into play as you scale, along with entitlement tracking and NetSuite order processing. The quote is step one, CPQ then leads into other downstream back office operations, like renewals. Information gets fed into downstream operations, from where it becomes critical for other teams to funnel it initially.
You also get to a point like now, when we have legacy perpetual SKUs, and then add-on products. As your price book begins to scale and you start getting into thousands of SKUs, it becomes impossible to use a calculator for everything. It is fine for a specific product, but just as an enablement tool for our field to understand the pricing.
With CPQ comes the whole approval system as well, since the quote has to be approved. What if somebody shows just 99 percent off in the calculator? There are no controls for that and they need to be in place.
The key takeaway is you need something to incentivize your customer to choose subscription over CapEx. We often see competitors just go out with the same model versus the CapEx, and it looks very self-serving. Customers think they’re trying to just show more subscription revenue to get a higher IPO valuation. What’s in it for the customer?
The goal in such a situation is to make it abundantly clear to the customer to choose a specific program, and not think of it as a license or a choice over a CapEx model.
That’s the customer-centric takeaway. The other is understanding who your field or sales organization is, and knowing who to rely on with a background of selling subscriptions, who you can make an internal brand ambassador for your subscription program. Start tracking the sales team members doing well with this model, bring them in, ask questions and have them tell success stories to their teams. It needs to come from within. For example, the most senior or tenured salesperson gets a lot of respect, and if they are doing really well with the subscription model, it is easy to tell the rest to push it, and how to do that.
This is when you start seeing real traction and conversion. Ensuring that the field is a part of the process makes it even easier to have brand ambassadors going forward, a tiger team of salespeople to rely on and craft this program with. This way, when you launch, they’re instantly brand ambassadors, converting the fields for you.