True Pay-As-You-Go Software Licensing Model – Myth or Reality?

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?

One comment on “True Pay-As-You-Go Software Licensing Model – Myth or Reality?

  1. Rick Ingram, President, License Tracker Inc. on

    True pay-as-you-go licensing models are very achievable when the concerns you highlighted are addressed.

    If the software is transitioning from on-premise to the cloud then usage based license costing can be applied to prior usage data so reasonable cost expectations can be calculated. In any case, maximum costs for each license made available should exist so absolute maximum costs (if all licenses are in use all the time, or to monthly capped rate) would be known to the enterprise.

    In any pay-as-you-go relationship there should always be a cost monitoring capability so that customers can compare their actual costs in this billing cycle to their budgeted allocation.

    Pay-as-you-go, whether by itself or in conjunction with perpetual licenses for peak demand, and whether done on-premise or in the cloud can be and should be a win:win for both software vendor and enterprise customers.,


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