Selling business applications as a service demands a different approach to pricing than conventional software licensing. As I discussed in a recent podcast with Apprenda luminary Mike Seckler about What it takes to be a SaaS provider, it means finding new ways of packaging and pricing the application. Providers are experimenting with a variety of pricing strategies, such as freemium, in which vendors give away some functions but charge for others.
But even I did a double-take when I read about the latest ploy by email response and contact management vendor eGain, which Infoworld's story describes as A SaaS app that's free unless it delivers value. The vendor is calling this not SaaS but SLaaS, which apparently stands for solution-as-a-service.
In fact, eGain's new web self-service application is simply a hosted package that's customized to customer requirements and then billed based on usage. The company describes this as "value-based pricing" on the assumption that the more people use it, the more value it delivers. "Success is judged by usage, [meaning] the number of self-service sessions conducted by their end-customers each month on the client's Web site" eGain's CEO Ashu Roy told InfoWorld. "The more the usage, the more the success."
I'm all in favor of usage-based pricing, which relates price to value much more effectively than the abitrary upfront license fees charged by conventional software vendors. But let's not dress it up as something it's not. Value goes beyond usage, and is more accurately measured by metrics such as profitability, customer satisfaction and repeat business.
"Imagine an application that you don't have to pay a penny for unless it provides measurable value to your company — and it's up to the vendor to prove that," gushes the introduction to the InfoWorld story. "IT shops the world over would be a lot better off, though the entire class of enterprise applications vendors would be in dire straits if they ever made such a claim."
I agree with the sentiment, but SaaS vendors are going to have to do more than simply come up with usage based pricing models if they truly want to reflect business value. If vendors got paid based on increased revenue, reduced cost or higher productivity achieved by using their software, then that really would be revolutionary. But it sounds a little bit too risky, even for the most adventurous of SaaS vendors.
This is restating the fundamental difference between product vendors and service providers. I'm not opposed to either, but this is why SaaS is an odd term, because you really are just using service as a way to sell software. If product vendors were any good at services, then all software would be free, but they usually are not, so the product business model must press on.
The value metrics mentioned in the article - profitability, customer satisfaction and repeat business - go far beyond software and related services. They get impacted by an array of factors such as the competitive position of a business, its value proposition, customer switching barriers, its overall operating efficiencies, the quality of its people, etc. In the case of customer web self-service, usage is in fact very closely tied to the value generated by the solution. We are willing to work with clients on achieving their own value metrics through deeper engagements that include an end-to-end evaluation of their customer interaction and service processes. Meanwhile, the SLaaS offer allows companies to get their "feet wet" with a zero-risk, limited-scope solution.