
It Might Be Time To Ditch The SaaS Monthly Subscription Model - iProject
http://techcrunch.com/2012/11/24/is-it-time-to-ditch-the-saas-monthly-subscription-model/
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ssebro
This is patently not true, and a very low-value article. Pay per use has been
around just as long as SAAS, and most businesses prefer knowing what they will
pay rather than getting variable bills, because

1) they're risk averse and want to know what pricing they're signing up for
(pay-per-use is often much more difficult to figure out what you'll wind up
paying in the end)

2) most businesses operate within known budgets, and introducing new software
on a pay-per-use basis may hurt their ability to accurately plan those
budgets.

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saurik
I think this depends on the kind of thing you are selling. If your product is
tied to my sales in some way, I actually would much prefer to have pay-per-
use, as it actually decreases my risks. If, however, your product is related
to my R&D efforts, then it can become highly confusing to estimate the per-use
costs, and something like per-seat or even per-month will be better.

As an example: I know that I sell this product for $4. I also know that PayPal
charges me $0.30 per-use for the transaction, I know that Amazon S3 charges me
$0.01 per-use for the download of the user manual, I know that AuthSMTP
charges me $0.001 per-use to send you the receipt, I know that the product
itself costs me "per-use" $2 wholesale, I know that UPS charges me $1 per-use
to ship it.

If I put all of this together, I know what my profit margin is per-sale, and I
therefore know how much money I can spend on things per-sale. If you then come
to me with something and say "our service will cost you $1 per sale, but will
make customers so happy that it will double the number of sales you make", I
know right off the bat I can't afford it unless I raise my prices (which I
hopefully also have some kind of model about the effects of): per-use, I
simply don't have the margin to do something that costs $1 per sale in this
model, no matter how much it increases my sales.

However, if you say "this costs $100,000 a month, and will double your sales",
I start to have to think about it: if I currently make less than that, but it
will double my sales, will I then be able to afford it? Maybe I can, and
that's great! But... what if my sales slump a little next month? Will I still
be able to afford it? Signing up for this service is now a liability, as I
need to maintain a justification for the fixed per-month price: there is the
irritating risk that the situation changes and I can no longer afford the
fixed fee.

It starts getting somewhat complex with things like "support ticketing
systems" (I am going to define this as something used "in house", not
something that a customer directly accesses and thereby could DoS me with by
filing an infinite number of tickets). I often think these should be charged
per-incident, however there is a related argument for per-seat. Let's say that
I know that 5% of my customers ask me a question, 50% of those can be answered
with a form letter, most of the rest just need a manual refund, and the
remaining 10% of those need more complex help and end up in a ticketing
system.

If you say "per-incident, our support product costs $1", I can then rapidly
work out that that costs me $0.10 per sale, which is within my budget as I can
afford it with the margins in my example. Likewise, if you charge me $0.015
per minute of VoIP phone call connected to an IVR system, I can compare that
to my other per-sale support costs to see whether that will be a net win or
loss for me: if it decreases the number of e-mail support requests I will get
by half, that decreases the cost of e-mails sent and received (and
written/read) per sale, and I can compare.

However, let's say I am attempting to use GitHub to develop my product; well,
I don't really have any business statistics on how I use git, my sample size
will be tiny anyway as I only have a small number of developers who would be
using it, and it really has nothing at all to do with my sales... it is more
of a business overhead that allows me to replace other overheads (maybe time
spent by employees, or entire employees); the risks associated with it have
very little to do with my sales: either it saves my employees time or it
doesn't. I can totally see this being great then "per-seat", and charging me
per-use will get confusing and irritating.

Although, if your costs scale per-use (which they probably do) it should still
be considered; on your end, though, you probably have great statistics on how
people use git (as for you, this is now your analysis of your sales margin)
that averages over all possible customers, and can come up with a more
accurate picture of my usage. However, as it is a customer-facing usage, it
might get scary for you to carry that risk that the playing field will change
--maybe git 1.9 comes out with some crazy new feature that makes it use twice
as much bandwidth to the server--and now your statistics are hosed in the same
way mine would have been if I bought a customer-facing support system with a
per-use fee and got DoS'd by an angry customer.

In a way, though, per-seat is just per-use for a different kind of use: it is
related to how my employees use it, and forces me to think about how I will
budget it differently based on my employees: instead of thinking how it
affects my customers, or how it affects my product quality, I now think about
how it will affect my employees. I can now start saying things like "I pay my
employees $100k/year, and half their time is spent on support; if your product
cuts the time they have to spend on support in half and costs less than
$25k/seat/year, it is financially intelligent for me to purchase it".

Most of the pay-as-you-go plans, though, are really not just pay-per-user
plans with weird usage caps organized into tiers. I will again argue that this
is just increasing my risk: if tomorrow I had a "great day" and sold a hundred
million products when I'd normally only sell a hundred, I would not sit around
going "shit, my EC2 bill is going to be a million dollars this month... I
should have had a cap"; instead, I'm going to go "awesome! I just made $30m,
because I know that I make $0.30 per sale once you take into account all of my
costs".

