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SaaS: Software at a lower price point
Software pricing is under attack. Traditional software licenses based on per server or concurrent/registered user models are often expensive. Much of the success of the SaaS model has had to do with offering a pricing model that is more attractive — per-user subscription pricing lets companies grow or shrink their pricing to fit closely with the reality of the application user pool, and usually at price points well below user pricing of traditional software.
Gartner estimates that traditional software almost invariably require customization services that bring the price tag up to, on average, four times the cost of the base software. On-Demand software is able to cut costs for companies by eliminating the need for on-site hardware and software and associated maintenance costs. On-Demand also reduces risk with a pay-as-you-go model, allowing companies to scale up or demand as their business changes.
But now even the on-demand subscription model is changing. Some on-demand vendors are introducing usage models that offer even lower cost structures.
Services like Amazon web services are pushing the price point of software down. The Amazon usage model — paying per transaction or per hour of usage can drop costs way down. Consider the example of a company covered by Phil Wainwright — after switching to an on-demand usage pricing, they found that per user costs dropped to as little as $3-4/month for heavy users and to as little as $.48 to $.02 per month for infrequent users. As Phil comments: “That’s at least a tenth — and at the extremes as much as a ten-thousandth — of the traditional all-inclusive monthly per-user fee for on-demand software.”
Today usage-based pricing models are primarily being used with infrastructure services — charges for on-demand hosting and database transactions. But it is likely that the pay-per-use model will spread to include standard business applications. And at those price points, on-demand will prove itself to be truly disruptive, and organizations of all sizes will then have access to the same enterprise software tools.
