Every year brings change to the software industry but with a new administration, amendments to revenue recognition rules and ongoing business model evolution, 2017 promises to be especially challenging. Tech companies will be faced with even more unique challenges including adapting to new accounting standards in preparation for ASC 606, embracing hybrid business models with a myriad of billing options, and meeting the compliance requirements associated with an IPO. While the backdrop for the software industry is quite bright, the challenges associated with sustaining and managing growth have never been more daunting.
Here are the five most important trends we see impacting the software industry in 2017.
The sweeping set of new regulations surrounding revenue recognition is the key change confronting the software industry and requires immediate action. The move to ASC 606 requires a start-to-finish review of financial systems. Although taxing, the transition to the new set of standards allows companies to move away from the archaic, legacy systems of the past and implement a comprehensive and effective financial system.
Support for Hybrid Business Models with Billing Requirements
In 2017, software companies will continue to confront the evolution of billing models. As businesses continue to adapt the way they sell software, we expect to see the ongoing transition from perpetual license plus maintenance to subscription models. Even pure subscription providers are examining usage-based approaches that align with customer usage. Billing software systems must now have real-time visibility into core business transactions, a requirement that standalone billing systems simply cannot handle. To effectively adapt to this new reality, business management software systems must have a billing component as part of the core infrastructure. Across the board, software companies face the challenge of managing billing across hybrid business models.
Increasing IPO Activity
The predictions for tech IPO’s in 2017 appear very positive compared to 2016 as TechCrunch states, “the drought is over.” With companies potentially tapping the public markets for capital, they will undoubtedly face greater scrutiny around their financial operations and governance, compliance and risk procedures. An IPO is a critical stepping stone in a company’s evolution and requires significant due diligence before choosing a software vendor that can provide the necessary reporting, controls and visibility into its business operations.
Picking where to go is as important as what to go with. Software companies are continuing to expand into global markets, and it make sense, with 75 percent of the world’s economic output coming from outside of the US. With global expansion comes country or region specific requirements that companies must consider to be successful. Choosing a back office system that can handle multi-currencies, multi-languages, and can scale appropriately with new emerging offices is fundamental to successful expansion. These back-office operations must also work across the organization so that all departments are aligned and can sync accordingly with the go-to-market strategy.
Governance, Risk Management and Compliance (GRC)
As the landscape of software companies evolves, so has the way companies manage governance, risk management and compliance. Mandated requirements, such as SOX, Dodd-Frank, IFRS convergence, and additional Public Company Accounting Oversight Board comments lead to increased focus and accountability on IT administrators to track compliance company-wide and implement a system of suitable internal controls. With many companies looking to go public or remain public, strategies are being put into place to reduce risk, automate access and control business applications.
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