Prescription for Subscription Fatigue? Time for New SaaS Pricing Models

As an analyst that’s covered the software-as-service (SaaS) market since 1999, I am briefed by vendors introducing new subscription services into the market on a regular basis. Many of these solutions provide small businesses with real solutions to real problems—whether helping you market your business, keep your books, manage projects or pay your bills (just to mention few). In many ways, SaaS or “cloud” pay-as-you-go subscription pricing model is ideal for small businesses. It eliminates the barrier of big upfront capital investments, and reduces financing requirements, freeing up capital for other needs. The SaaS provider takes on the burden of IT support and maintenance, enabling the small business to focus more resources and attention on the business.

And there’s no doubt that the SaaS model provides tremendous economies–which vendors can pass on to customers. Multi-tenant architecture enables vendors to service customers much more efficiently, and Web-centered marketing makes it much more affordable for companies to effectively reach prospective customers with their offerings. All else being equal, its highly likely that a SaaS solution will be easier for a small business to digest—both financially and technically—than a packaged software offering.

But, I have to wonder, how will subscription fatigue affect adoption of software-as-a-service (SaaS) or cloud computing solutions in the small business market? While the threshold for purchasing an individual solution may be quite reasonable, when you start adding more services, how many of these monthly subscription fees can the average small business afford? And how many different service provider contracts does a small business want to manage and monitor?

From a consumer standpoint, just stop and tally up what you spend every month on mobile and land lines, cable TV, Internet connectivity, and other services from Netflix to satellite radio to online gaming–not to mention traditional media subscriptions. For a family, it can quickly creep up to enough to feed a family of six in a third world country.

In the SaaS world, these monthly fees can add up even more quickly for a small business, who may be purchasing a service for $10, $25, or $60 per user per month, for several users. At a certain point, individuals and decision makers in small businesses balk at forking out for another subscription. Unless the service just whacks you over the side of the head with its value, many businesses will decide to just continue to do without. As they tally up monthly fees, they may also determine that some services haven’t really provided enough value—and are, in fact, dispensable.

All of which points to the fact that, for the most part, the small business SaaS per user, per month pricing model hasn’t changed in the past 10 years! Oh sure, there are ad supported free services, and a few vendors, such as Zoho, that give companies a couple of free seats before fees kick in. But for the most part, the per user, per month model reigns, no matter how much or how little individual users actually use the solution, or the value that they get out of it.

SaaS vendors targeting small businesses need to start experimenting with some different options if they want to create a true volume market for their solutions. How about trying pricing models that would allow for concurrent use, instead of specific named users?  Or unlimited use for businesses of different sizes? Or (and I’m sure that this will send shudders down some vendors’ spines) pricing based in part on measuring the effectiveness of the solution, in terms of time or cost savings, or increased web site traffic, or some other relevant variable? SaaS has been a huge leap forward in how software is delivered, it’s time for vendors to experiment with the next big leap—new pricing models.

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