Pay As You Go Pricing Death Knell for Software Vendors?

Software licensing is always a sensitive subject for vendors, because it's where all the flashy advertising and talk about strategic value gives way to hashing out just what the customer has to pay. It must get downright scary for software vendors when they hear that some major customers, as they move to cloud (Web-based) computing environments, want to pay for only the software they use, when they use it, and only for as long as they need it.

Alan Boehme is senior VP of IT strategy and enterprise architecture at financial services giant ING, and a major backer of cloud computing, both inside ING and in industry forums. If the promise of cloud computing is that customers buys only the computing resources they need, he asks, why are they still paying software vendors annual per-user, per-site, or per-processor licensing fees that don't reflect actual usage? He'd like to see the licensing of the software itself, as well as associated fees like maintenance and support, pro-rated to the time users actually spend using an application.

If buying computing services over the Web is all about the efficient matching of  resources to needs, it's only a matter of time before someone figures out how to provide very granular, real-time, to the second pricing for application services over the Web. However they tweak their pricing, that has to mean huge hits to the revenue of raditional software vendors such as Microsoft and Oracle. Even Salesforce, the poster child for software as a service, charges an annual fee regardless of how often you log on. How will software vendors pay for all those fancy office buildings, schmooze-filled user conferences and -- gulp! - white papers  when revenue drops 30, 40, 50 percent or more?

For this ex-reporter, it's an eerie reflection of what newspapers are going through: Readers want content, but have been trained by the market to get it for free, or at least at minimal cost. The market is doing a great job at driving efficiencies for customers, but not at funding the intellectual content (software or journalism) that they demand.

 

Comments

[Niall Halpenny]

Bob,

I liked your artical and agree with the view that SaaS based delivery models will lead to a major "rationalisation" of the fee structure based business models within the software industry.

Within the Telco industry there were several major casualities where house hold names like Siemens, Nortel and Lucent all fell out of the race.

My view here is that the root cause here is similar to what's now happening with the SaaS model and that's a trend towards commodisation.

As we move towards open platforms and the SaaS model, the previous lock-in through proprietary software quickly starts to erode.

Other the other side of the equation, the opportunities for the small niche service providers grow exponentially (e.g. Developers for the App stores, etc.). From a Blue Chip perspective this gets very hard to scale so they must switch to a services model, like IBM or Ericsson have, backed up by a consistent campaign of M&A.