Editor’s note: Ray Sobol is founder and CEO of EvidencePix, an enterprise-grade secure MDM service. Ray has more than 25 years experience in launching high-tech ventures and disruptive technologies.
No one likes to pay for things they don’t use. If you’ve ever grappled with the fact that you’re paying for 500 channels on your monthly cable bill when you only use a few, you know what I mean. The same problem holds true when it comes to software. An average business purchases more software than is actually needed, and we’ve all had software installed that we used sparingly. It’s time to let customers pay based on what they actually use.
The Evolution Of Software Pricing Models
The past two decades have brought significant changes to B2B software sales. SaaS upended traditional software licenses and made install disks an artifact of the 90s. Then, hefty annual SaaS subscriptions gave way to today’s more flexible, user-friendly monthly plans. Of course, evolution never rests, and consumers will relentlessly drive the market toward cost-efficiency.
With time-based subscription plans, software will always be underutilized. Obviously, annual subscriptions are the most egregious offender, but monthly subscriptions can be just as wasteful, particularly given the fluid reality of today’s workforce.
Employers are increasingly relying on a patchwork of contractors, freelancers, and project-based workers. As a result, it’s hard to predict exactly what resources will be needed on a monthly, weekly, or daily basis. Annual, even monthly, subscriptions can be overkill for a company that needs to get one worker up and running one week and another worker the next.
Even with a full-time workforce, nothing is static in business: Employees transfer departments; businesses pivot their focus; and projects come and go. Each change can result in unused software when subscriptions are purchased. The price of a single month’s subscription may seem harmless enough; however, monthly subscriptions accumulated across a large enterprise can take a serious toll on the bottom line.
The “Pay-Per-Use” Model
The most economically beneficial model for end users is “pay-per-use,” where customers pay based on what they actually use. For example, companies can pay each time an employee uses a service to run a backup, fill out a mobile form, or perform some other task. By forsaking licensing or subscription arrangements, enterprises are able to use any product, at any time, as much as they need, without having to pay for software they don’t use.
With this option, companies don’t have to worry about managing licenses and subscriptions across their pool of workers. They can equip each worker with the tools they need, when they need them, and monthly subscriptions no longer go unused for weeks on end.
Several software vendors are already moving toward this new model. With Windows Azure, Microsoft is offering customers a “pay-as-you-go” alternative to its six-month and 12-month plans. Companies like Twilio are serving up pricing based on the cent, and yet others offer micro activities at a fraction of a cent in combination with reduced monthly rates.
Pay-per-use is a bleeding-edge approach to SaaS revenue and may not apply to every business and software. However, if you think creatively enough, you can find opportunities to break down any software tool into smaller, billable units – such as creating/sending one expense report, playing an online game for one hour, or sending a visual report from a mobile device.
The pay-per-use movement is rooted in a core belief that people should pay only for what they need and use. It’s a radically different model than the original software license from two decades ago, and there will always be resistance to change, even in the fast-paced technology world. However, as the market is continually driving toward greater flexibility and lower costs, the day when you need to offer a pay-as-you-go option may be sooner than you think.