Economic headwinds could change SaaS pricing models in good news for consumers

When it comes to pricing out how companies and teams use software-as-a-service (SaaS), consumers aren’t often given much of a choice—but that could be changing due to market forces and an uncertain economy.

Pricing models are usually based on a per-user, level of consumption fee—in theory, effectively allowing the provider to let some lower-level users subsidize higher-level users by setting the cost near the median. Per-user pricing, Gartner analyst Stephen White told IT Brew, is the industry norm due in large part to convenience.

“Per-user license commitment, regardless of whether the user makes effective use of it—consumes it—it still costs the organization the same amount,” White said. “That’s by far the predominant model; there is a limited degree to which consumption billing has progressed.”

Per usage, not per use. Some vendors are considering a consumption model as the future of the industry: paying for the resources as you use them, effectively metering for SaaS.

“It is very likely, in my opinion, that there will be more companies that are either on a consumption model or offer a consumption element to the model,” Jaluria said.

John Santoro, an analyst with Gartner, agreed. Billing customers on a per-user basis isn’t preferable if the alternative is losing them completely, he told Insider.

“I think that it’s important for providers to provide options to customers…so that when the customers become more price-sensitive, they have options other than dropping the product entirely,” Santoro said.

California-based company Amberflo aims to take advantage of this market opportunity by providing software that makes metered usage and pricing a reality. The company’s founder and CEO Puneet Gupta told TechCrunch in January that metering is advantageous to providers in part because it can help them retain customers who might otherwise be inclined to cancel memberships over higher cost than use.

“In the subscription world, nobody tracks usage,” Gupta said. “Companies are actually disincentivized to track usage.”—EH

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