A Good Idea: Paying for What You Use

"Paying for what you use." Yes, I know, it's a radical concept in the software world, but not in other areas. Electricity: the utility company measures your electricity consumption, and bills you for it. If you consume a lot of electricity at peak hours, then you pay a lot more than someone who uses little electricity at off-peak hours. Gasoline: if you drive a lot, you buy a lot of gasoline; if you drive a little, you buy little gasoline.

In the software world, equitable payment for what you consume is much more elusive. The definition of consumption is all over the place. If you're talking servers, the measurement might include the server model number ("size"), the number of CPUs, the number of potential users, the number of concurrent users, etc. If you're talking PCs, the measurement is usually a user, but with little regard to their usage of the software. An expert who uses every feature in the software is often billed the same as someone who buys the software but never uses it. True, there is some rudimentary granularity in the market--for example, the business intelligence market has often offered two types of client software: an expensive rich client package for the analyst who drills into the numbers and creates reports, and a less expensive client (usually web browser-based) for the casual user who reads canned reports from time to time.

However, in this recession, that rudimentary granularity is no longer enough. I'm getting a lot of calls from clients who feel they're paying too much for Microsoft Office and want to explore other options. It isn't that they feel they're being overcharged across the board--they think Office is an excellent suite for their expert users. For example, Microsoft Excel is incredibly feature-rich, and their spreadsheet jockeys can do incredible things with it. At the same time, these same companies have given Excel to workers who just use it as an application for generating simple tables. The most spreadsheet-specific thing they do is sometimes add up a column--and you can do that in Word.

So when someone like Google or IBM or Sun comes along and says, "We can give you a pretty good productivity suite for a much lower cost [including free]," these budget-strapped companies take notice. Now due to a variety of issues--the need to support expert users, some file translation issues, etc.--it's not easy to do a wholesale replacement of Office. However, surgical replacement can be done.

In my view, both sides of this argument are wrong: Microsoft saying that you need to overbuy because you never know when a worker might need a certain feature (true, but not as often as Microsoft claims); Google, IBM, and Sun saying that you don't need all that functionality (actually, sometimes you do). In other words, both sides assume that rudimentary granularity is here to stay.

The way out of this conumdrum is to say, "No, we're going to charge customers for what they use." With a SaaS-based solution, that's quite easy to do--the web server tracks feature usage and charges back in a much more granular fashion. For example, one user is typically a casual user, but because she's been assigned to a three-month project requiring heavy usage of a spreadsheet, she's charged for heavy formula usage. After that, after she goes back to using the spreadsheet as a glorified table creator, she's charged the lower rate again.

Even with software, this is possible. Microsoft has been monitoring usage stats of Office for years, as a way to understand feature usage. However, it's part of the development process, and has never been used for licensing.

So the next time you sit down with your solution provider to talk about licensing, start the conversation by saying, "You know, we'd actually like to pay for what we use." If the vendors hear that enough from customers, they may start rethinking how they do licensing. Electricity and gas have been sold in an equitable fashion for the past 80 years; it would be nice if software caught up. 

Comments

[Jamie]

it's an interesting concept but it's not as germaine. For example, you don't pay for what you use in the car. You buy the car, you own it. The gas is only a propellant. You own your lamps, house etc. What you are really addressing is the difference between traditional software buying where the user owns the IP forever, never updgrade/buy again but keep using. In effect, you buy the lamp, you decide do you want to keep using it or not. For SaaS, you don't own anything at all. You are leasing. So the argument is really lease or buy which is driven by ROI of how often you upgrade, what do you connect to and how often does that change etc.

It's a bit of a phantom, albeit pedestrian, arguement that really is much deeper.

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