With competition growing by the day for “as-a-Service” applications, Leonardo Hodgson looks at how pricing flexibility is crucial to achieving sustained growth in the cloud market.
The ever growing, never tired, multi-billion dollar software industry continues to surprise even after several decades since the appearance of the first generation of commercial applications around the 1960s and 70s. One of the most striking facts in this massive evolution, fuelled by the advance of the internet, has been the arrival and fast adoption of cloud technology over the last decade. This computing concept has introduced the revolutionary method of deploying software solutions using the internet, transforming the traditional application business forever.
It is not hard to find numbers to illustrate how the cloud application industry is rocketing. A recent forecast published by Gartner shows that the size of the public cloud services market in 2013 was expected to be $131 billion, almost 20% higher than the previous year. And Forbes
reports that Cloud-as-a-Service revenues will grow from $5.7B in 2012 to $19.5B in 2016, attaining a 36% CAGR, according to the latest research from 451 Research
. In terms of the number of cloud applications, Serchen
, one of the biggest cloud directory websites, currently lists more than ten thousand cloud service providers in their marketplace, spanning a wide variety of categories and addressing any type and size of business. From hosting, storage and security, to accounting, CRM and marketing automation, all are available to use “as-a-service” within a matter of a few minutes from sign-up.
Apart from the fantastic growth, these numbers also lead to another obvious conclusion – that competition is only going to become stronger as more new entrants arrive and the old-school software providers migrate to join the cloud revolution. However, analysis of the pricing strategy adopted by the majority of the business application providers reveals that per-seat subscription pricing prevails – one-size-fits-all is still the preference it seems, and this is a dangerous game in an increasingly competitive market.
This lack of pricing flexibility often leads to a poor customer experience and impacts your conversion rates. For example, some potential customers may think twice before subscribing to a service they are not likely to consume frequently enough, however they may be happy to consider a pay-per-use model instead. Another example is businesses stuck having to buy expensive “enterprise” seats for all users, when some need only basic access to a subset of system functionality. This pricing inertia is a huge risk for “as-a-Service” applications, and it will only take one new entrant with a more dynamic pricing approach to really shake up the market.
One of the great advantages of the “as-a-service” model is the ability to measure and analyse your customer behaviour to identify trends and preferences, allowing you to adjust not only your product but also your pricing strategy. That’s when innovation and extra flexibility around the pricing model is crucial to help your solution to stand out from the crowd and continue to grow in more saturated markets. A carefully planned pricing strategy can be used to introduce new pricing options on top of your existing plans, attracting new revenue opportunities but without cannibalising your main streams.
To launch and grow a successful cloud-based business now requires a versatile billing system that enables you to quickly address the constantly shifting opportunities for each phase of your maturity and the competitive landscape. Flexible contract terms, sales negotiable pricing, configurable charging frequencies, pay-per-use models and usage allowances – these are just some of the pricing tools to look out for in the latest generation of Billing-as-a-Service applications.