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Entries in Partnership_2.0 SaaS Pricing (1)

Monday
Jul132009

Partnership 2.0: Complementary SaaS Application Pricing Models

We are starting to see something interesting happen in regards to the focus and scope of SaaS application offerings. I'm talking about the premise of doing one thing well, rather than trying to do everything - which is pretty much what SaaS vendors try to do.

To complement all this, SaaS vendors are keen to support integration, through open API's, widgets , and loose-coupled partnerships with other SaaS applications. It's almost a de facto buying requirement that a SaaS offering has an architecture and a vibrant community to enable customer's to mash-up solutions.

However, these loose-coupled partnerships don't yet appear to extend to include a commercial pricing model that might foster even greater take-up.

Let's look at this from a customers perspective. If I start putting together a mash-up of various complementary SaaS applications, the costs start to ramp up - $20 + $30 + $25 = ..... Indeed, those all-in-one solutions may start to look better value, even through are likely to be less effective overall - which isn't better value after all.

From a SaaS vendors perspective, I can't help feeling that they very much like the idea of complementary partnerships to help boost adoption of their offerings. After all they need to sign-up those subscribers and keep them subscribed - one of my favourite dimensions about the SaaS model.

However, I've not seen much evidence in regard to supportive pricing models. It's kind of still that SaaS vendors are loathed to see their price undermined, they still want their share of the pie sustained. From this last statement, you'll know where I'm going next - the bigger pie argument.

Let's go back to a customers perspective and look at a scenario. I want a solution, I have choices: (1) Purchased/Install Software, (2) All-in-One SaaS Application, (3) Mash-up SaaS applications. I'll add a split to (3) - (3a) to cover open source, (3b) to cover commercial.

Rather than go into a complete comparison over all the choices, I just want to highlight one aspect. There are so many good tightly focused SaaS applications that I could certainly assemble lots of mash-up combinations. The open source ones, including all-in-ones, will certainly not have to consider much the up-front costs, but the commercial combinations will certainly start to see how price becomes a factor.

If your one of these SaaS vendors, would you not want help mitigate some of these factors to increase the slice size of your sectors pie and help customers select your combinations?

If this a line of argument that may make some sense, then how do we practically rationalize the split or value the contribution of each party? Certainly, you can't easily amortise individual physical hosting costs, but from a logical functionality perspective overlaps can exist - ironically because of tighter integration.

The key perhaps is to examine value components across a wider system perspective - as if it was an all-in-one, then try and price it at the premium end of the competitive options - since it will likely be much better - if it isn't then that's a bigger worry!

This isn't going to be easy, each SaaS vendor has to make their model work on it's own, but a trick is being missed if complementary SaaS vendors who are using loose-coupling partnerships to boost their profiles, don't start at putting together some imaginative pricing models to back this up.

To quote an old marketing adage - customers have wider choices than just product A or B, including do nothing.