License models suck

Most license models suck in some way:

  • Flat rate sucks for the vendor because it leaves money on the table from large customers. This can be acceptable for an inherently limited product model (e.g. per user with a bulk discount), but it is not ideal for scalable enterprise software.
  • Per unit of a metric sucks for the customer because it’s disincenting use of whatever metric you select.Charge by data ingested? Now there’s a reason not to ingest data.Charge by CPUs used? Now there’s a reason not to provision hardware.
    • Charge by seat? Now there’s a reason to withhold access.
  • Indirect charges suck because they feel unfair. For instance, charging by the size of the customer’s company only fits top-down sales models. Any indirect model other than a flat rate increases sales friction needlessly.

Per unit of a metric tends to win out of those models. It’s easy to explain, Easy to measure and bill, easy to enforce if you choose to. But, it also produces some specific problems:

What if the units charged for have variable values to the customer? Then you’re right back at the flat rate problems. Customer feels like they’re being charged for stuff they don’t use, and vendor feels like they’re selling at a lower cost than they could.

More insidious: a successful pricing model shapes a company. The metric that they charge for becomes the measurement that sales optimizes for, and that establishes what products and services the company can realistically pursue.

If you see a great idea fizzle and die at a vendor that should be an obvious technical fit… maybe it’s their pricing model.

Licensing Thoughts, Round Two

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