While customer interest in pay-per-use (PPU) pricing is not a new phenomenon, the expansion of software as a service (SaaS) offerings and the advent of cloud computing are accelerating this trend. A recent software pricing survey by International Data Corporation (IDC) shows that customers want software pricing models that allow them to pay only for what they use while maintaining an even distribution of costs over time. To achieve this, vendors and customers will have to work together to redefine the software value framework.
Software vendors must immerse themselves in the activities of their customers to determine what they are hoping to achieve with the software. Once the vendor understands how the customer is using its software, it will be easier to determine the metric that is most appropriate for per-use measurement. But the move toward greater granularity and flexibility in pricing presents vendors and customers with a series of challenges, including: increased complexity in the applications; the need for tools to measure use; concerns about revenue and cost impact; and the fate of the partner ecosystem based on traditional notions of value.
It is not yet clear what impact usage-based pricing models will have on the economics of the software industry as a whole. In the meantime, software vendors need to focus on a series of issues to prepare the way for PPU and utility licensing options:
-- Selecting resource utilization metrics that make sense in the context of software business value is one of the first challenges that a software vendor will face in moving to a PPU model. Vendors will need to work closely with their customers to determine what makes the most sense.
-- Vendors must also be able to provide complete and detailed billing summaries that eliminate the customer need to collect usage information. The ability to provide accurate and timely resource utilization information will be crucial to winning customer acceptance of any new pricing structure.
-- In addition to PPU pricing and tracking, the software architecture and delivery methodology must enable fast and flexible deployment of software resources to meet customers' changing business needs.
-- Because customer preferences vary, vendors need to be prepared to offer a portfolio of licensing and delivery approaches.
More information on Software as a Service can be found at www.SupportIndustry.com
1 comment:
This article makes a lot of good points. PPU license models put a lot of pressure on both the software producer (ISV) and the customer. In addition, tools are required for usage gathering and billing.
In the science and engineering markets (where ISV's have a wide portfolio of software with variable usage patterns), we see the adoption of PPU models for the large customers, usually in the form of "remix", "token" license models - license models that provide predictability to both the ISV and customer, yet still provide the flexibility to use what they need, when they need it.
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