In New Delhi: 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.
IDC believes that the software industry must move from a position where value is equal to the product to a model where real value lies in the ease, intuitiveness, and seamlessness of the experience, Amy Konary, research director, Software Pricing, Licensing, and Delivery said.
Licensing models that provide customers with access to positive experiences must also take into account the heterogeneous nature of the customer base as well as the role of the individual in value creation. For this reason, software packaging and pricing constructs must provide a level of granularity that enables the customers to participate in the value-creation process, he added
To enable this type of value creation, 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, 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 utilisation 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.
In addition to PPU pricing and tracking, the software architecture and delivery methodology must enable fast and flexible deployment of software resources to meet customer's changing business needs.
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