Some Thoughts on SaaS Pricing

Posted on June 5, 2010 by Sam Conforti

 

I have been a member of LinkedIn, the Professional Networking Site, for some time. I have joined several groups that compliment my background and/or can increase my understanding in my particular area of practice. I have found one group, Software Licensing Professionals, to be particularly helpful. There is one relatively new discussion started by Michelle Nerlinger,Sr. Product Marketing Manager, SRM Solutions at SafeNet, Inc., entitled SaaS v Software: Their Licensing Needs to be Integrated. I was very impressed by the comments from all the discussion participants. Their comments are evidence of each person’s vast experience in this area and the trials and tribulations they have experienced while we all take this journey into the world of SaaS. The one overriding issue in this series of comments, as well as in my many readings on the topic, is pricing. The concept of pay-as-you-go just hasn’t crystallized and many vendors have resorted to a sort of subscription model, if the customer can indeed make use of the model. I came across one very informative comment by one of the discussion participants and I want to share it with you. I want to give full credit to its author David Ochroch, Information Technology Strategic Sourcing Consultant and Manager. His comments on SaaS pricing are as follows:

“Most pricing for SaaS follows a per-user model because that tracks directly to web-based access rights. A number of on-premise apps can price per-user...and as long as the software is a true user-based application, a per-user model works well as a value indicator. The per-user pricing model starts to break down in (at least) two cases: 1) where the app can't readily define or track users; and 2) where the app is used very rarely or primarily during peak times. Software with those latter attributes are usually sold on some other basis (per server, per processor, etc.). From my experience, software with those attributes (e.g., databases, middleware, security monitoring, transaction processing) often resides on-premise for performance reasons -- and I don't see SaaS being widely used in those areas for some time. I'm suggesting that there won't be a one-size-fits-all licensing model for either SaaS or on-premise but there should be commonality in the licensing metrics between the same SaaS and on-premise software versions.”

 

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SaaS: Will the Large Enterprises Accept it?

Posted on July 28, 2008 by Sam Conforti

 

Richard Adhikari reports on a recent summit of SaaS executives in his article Are Changes Coming in the SaaS World?  The direction the industry should take was discussed but with little consensus.  It seems that those assembled see the huge potential in acceptance of SaaS by the large global enterprises, but no one can quite figure out how to break through the barriers.  Adhikari has done an excellent job of presenting the plethora of diverging views on why or why not the SaaS vendors should target the large enterprise market and how to go about doing it.  I am not privy to their marketing research nor have I suffered the trials and tribulations that some of the participants relate.  It just seems to me that sometimes it might be best to let the sleeping giants sleep.  Will these large enterprises come on board sooner or later?  Adhikari cites Maynard Webb, CEO of virtual call center company LiveOps who states:


It's a vicious circle: SaaS vendors can't sell to the enterprise because they haven't solved many of the concerns IT has with on demand software, so they don't try.  Most SaaS vendors target the SMB market, while the rest aim "at niches in the enterprise such as human resources"


What becomes apparent when reading Adhikari’s article is that there isn’t just one reason for the reticence of large enterprises to accept the SaaS model.


In my research in this area I have come across varied opinions and insight into just what exactly SaaS is and who should take advantage of it.  In my February 10, 2008 posting to this Blog SaaS is the Future software developers were scrambling to meet the demands of their market.  At that point their market was the SMB enterprise.


A further explanation as to the non-universal acceptance of SaaS can be gleaned from an insightful comment by Sybase CEO John Chen:


“ … But the reality is that every new technology and every new method will have its audience – but it won’t wipe out the previous ones.”  For the full story and an interesting perspective see my May 1, 2008 posting What Customers Want from their Software Vendors.


Of course there also is the other side of the coin.  The SaaS software developers themselves have their own internal hurdles to surmount.  In my June 1, 2008 posting Growing Pains of OnDemand I highlight one of the problems of managing a subscription business:


“Simply put, the business processes needed to run a subscription business do not yet exist, and when these new business processes do come on line, they will be incompatible with the existing business processes for a large enterprise software company.”


Perhaps it is best summed up in Adhikari’s article by Lisa Lambert, managing director of the software & solutions group at Intel Capital:


Intel's Lambert thinks the notion of selling to the enterprise is a red herring.  "I don't think it's a question of enterprises not being ready to buy SaaS, it's that it makes more sense for small businesses to buy SaaS.  The value proposition of SaaS really appeals to small businesses, which were excluded from being able to buy legitimate software infrastructure that's enterprise ready because they couldn't afford it, it was too expensive and complex, and had long implementation cycles."


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