As more and more people adopt SaaS applications, end-users, enterprise software buyers, and investors continue to put tremendous pressure on companies that sell perpetual software and hardware. The end-user is demanding subscription-based versions of their applications. Investors seek stable cash flow environments in return for higher multiples. In response, many Software companies have switched to a subscription-based model or SaaS-based model. Companies that are still selling perpetual licenses on a transactional basis, or by exchanging products for money, are searching for ways to sell a cloud-native software product that is subscription-based.

Adobe Inc. launched a Software-as-a-Service (SaaS) subscription version of Creative Suite on April 23, 2012, resulting in its net income plummeting nearly 35% the following year. Yet by today, Adobe’s stock price has 18x'ed in less than 10 years. At the time, this radical shift in Adobe's business model from a product-based one to a service-based model caused much debate in the industry. In hindsight, they took the right action.

This business can present an investment opportunity. They don't screen well because their overall growth rate and margins fall. Once they transition, both margins and growth recover. Current examples of transitions are (they are all at different stages of the transition):

Disclosure: I own them all.