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I recently came across this post – Is IT Ready for True Pay-as-you-go Software Model? – on the IT Business Edge blog. In the post, Ann All states, “While customers are eager to take advantage of the pay-as-you-go usage model promised in the early days of the cloud, software vendors are understandably reluctant to give up their large licensing fees and ongoing support and maintenance revenues.”

I wanted to share my perspectives…

  1. Software vendors for complex software solutions will have a hard time making it simple enough to make it predictable. Look at the Azure/Amazon pricing—it’s a mess. I have had several CIOs complain to me already that what they expected vs. what they paid were quite different. When you price 100s of different features—you’re going to have a very hard time doing pay as you go models.
  2. Enterprises will accept some variability – but no more than 5-10% (I suspect). They are accountable to budgets and can’t blow them up. In theory, pay-as-you-go is about reducing costs. So the software licensing models must be simple, tied to something fairly predictable and software vendors must provide information to enterprises as they use it. This is why we have meters in cabs.
  3. Enterprises will want ability to verify the data – especially when the meter is usage-based instead of # of employees or other controllable metrics. Cabs in most countries have placards explaining the metric and the price for each.
  4. Enterprises won’t want to pay weekly/monthly – they will want quarterly or semi-annual payments at most. The cost of invoicing, etc. is large.

Until software vendors can provide simple metrics that are highly predictable/controllable with a lot of verifiable data points, enterprises will not adopt pay-as-you-go software licensing models – even if it means potentially significant savings.

What’s your perspective on pay-as-you-go software licensing models?