Posts tagged ‘pricing’

SaaS Pricing and Metering

I apologize for my long absence from this blog. A lot has been happening of late that has kept me quite busy. For one, I’ve been busy formulating solutions and service offerings for some emerging technologies such as SaaS and Enterprise 2.0 for my company. Plus, I’ve also been putting a business plan in place to start an animation and gaming practice within Patni and in order to get the ball rolling, there is lots of data that I need to put together to get the action plan together. On top of that, I just came back from a Vegas trip, where my company had a sales conference and anyone that’s been to Vegas knows that you need a few days to recuperate after a Vegas trip 🙂

Anyhow, I wanted to spend some time today discussing a topic that does not get as much attention as the usual areas of technology, architecture and multi-tenant data architectures that are more commonly associated with SaaS. That topic is about pricing and how to price a SaaS offering. SaaS brings many different challenges with it – architectural challenges, business model challenges, operational challenges and sales/marketing challenges. Of these, a lot is written about different SaaS business models, the technical challenges of designing a multi-tenant architecture and data models as well as the infrastructure and operational challenges of maintaining increased uptime. However, what are the pricing, metering and billing challenges that a company faces when they move to a SaaS model. That’s what this article is about.

The challenge with pricing has two dimensions to it. For one, ISVs need to figure out a pricing strategy that does not alienate their existing customers – ISVs need to figure out a way to prevent their existing customers just from all of a sudden just dropping their existing on-premise (OP) software packages in favor of the new on-demand (OD) version. At the same time, once pricing is established, ISVs need the infrastructure to property monitor usage (billing and metering).

Let’s look at the first dimension – pricing strategy. A key point to remember when making the switch to SaaS is that you no longer get a big fat paycheck when you sign up a customer. As I mentioned in my previous post on SaaS, there is a trickle effect with SaaS revenues – they start at lower levels than traditional OP software and come in over time due to the monthly pay cycles. With many ISVs pricing their monthly costs at less than $100, it is not easy to start seeing substantial revenue using a SaaS model early on. In addition, it is not easy to upsell or cross-sell your customers on additional value services all the time. Hence, there is no one pricing strategy that is a fit for all scenarios. ISVs need to figure out if they want to charge per user, or per account or per transaction. Gauging your customer’s price sensitivity becomes a hard thing to do given that a SaaS model means less reliance on channel partners. So what is an ISV to do?

That is where a company like Patni can help. As part of our complete solution offering in SaaS, we help you figure out a concrete roadmap on how to establish your pricing strategy by examining the business value of your software and how your customer will utilize and consume your product. Customer utilization patterns need to be studied and that factors into how the product will be priced. Another factor to consider is what the competition is doing and how much more value add is offered by your product in order to command a premium (or not). The bottom line is that ISVs need to factor in a multi-tiered pricing strategy to successfully implement a SaaS solution.

Once a pricing strategy has been formulated, the next piece of the puzzle is developing a metering and billing solution that can handle this new pricing mechanism and report results on usage. Whether you choose to build this in-house or customize an existing COTs product, Patni can bring their metering and billing expertise to the table to help you either build a complete customized solution from scratch or enhance and customize an existing product to meet your needs. At the end of the day, it is important to remember that a metering solution can be extremely complex depending on the ISV and their pricing strategy and needs to factor in a lot of data collection on usage and pricing on a per customer and contract basis. A good metering solution needs to collect relevant data around users, CPUs and hardware, transactions executed, workflows and business processes and a host of other metrics to be able to allow the level of flexibility and scalability that a proper SaaS solution billing framework needs. This is where a proper SOA implementation in your enterprise becomes very important. SOA allows us to effective monitor and manage some of these data points and pass this on to the metering engine in an effective and non-intrusive way, thereby allowing for increased integration between SOA and SaaS.

So in summary, pricing is just as important a piece as the rest of the SaaS components and ISVs need to think through a pricing and metering/billing strategy to effective deploy and realize revenue from their SaaS based applications.

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February 28, 2008 at 10:11 pm Leave a comment



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