At a recent conference our CEO asked: “What’s the average price of software?”
An interesting question. I started thinking about the mix of consumer vs enterprise, the uptake of subscription based and usage based pricing, and a host of other factors that left me spinning to the point I concocted a number way off the mark. I’ll preserve a little dignity and not share my answer, but ask that for a moment that you ponder the same.
I suppose the title of this article may provide a clue. So do you have your guess?
If you said $0.99 you’d be right. There seems to be an app for everything, and moreover it’s a place we increasingly turn to for software. (And just to note, I’m talking productivity software, not just an update to Angry Birds.)
That simple question got me thinking about the impact of “there’s an app for that” on how we consume software, and what our expectations are when purchasing software. The smartphone [insert your favorite brand and platform here], has made it possible for everyone to have instant access to software immediately — and the barriers to creating and delivering software have been shattered. One of the biggest impact areas is in how much specialized software there is available to us.
I no longer need to purchase an application that does 100 nifty things, when all I want are 4 simple operations. Guess what? There’s a good chance someone out there has developed an easy app that does the 4 things I need, and I can get it for 99c. It amounts to on-demand software. What I need, when I need it, and delivered my way with the entire Internet available to power it. I may be dating myself, but remember when navigation systems were a high priced add-on to cars, as were 6 disc CD units, and the ability to use SD cards. Now all I need is to plug in my smart phone.
As a software publisher still deriving most of your revenues from large perpetual software licenses, relying on maintenance revenues, and focusing on a B2B market for which these “app rules” don’t apply, should you be concerned? The answer is a resounding yes. I don’t need to bombard you with research and reports that show the dramatic rates at which the world is becoming increasingly connected. You already know that.
The truth is, that in the world of specialized and connected apps, we’ve barely scratched the surface. Applications will continue to find themselves integrated into our everyday lives as the world gets increasingly computerized. The notion of usage based pricing, essentially never over paying, is quickly going to go from being a “new” pricing model to becoming an expected part of how software is purchased. When you juxtapose this against how current pricing models work, it can be a scary thought. The prevailing mentality is that if someone is paying $100/seat for an application with dozens of features, they’ll probably only want to pay a small fraction of that for less. This stems from thinking of usage passed pricing with a traditional perpetual model mindset– and this can lead to poorly priced offerings.
So what’s the recipe for creating leaner software and pricing it in a manner that let your customers pay what they need? Well, there isn’t a one-size-fits-all solution, but the first step is to get a better understanding of how customers are using your software. Product Managers frequently reach out to customers, engage in dialogue with analysts, and conduct surveys — but this approach still results in opinions over fact. To get the real information, you need some way to track and report on how customers are using your applications. License Management has always been thought of as a way to enforce and audit customers to using what they are entitled to and not more. But incorporating licensing into your applications is a very effective way to capture usage information, and can be done in a very seamless manner with little to no disruption in customer experience.
Technologies exist that allow you to leverage the cloud to track usage real time, analyze customer behavior, and even adjust licensing parameters on the fly — and none of this requires any sort of enforcement if not required. Not only does this allow you to understand your market in far more depth than you might currently be doing, but it also allows you to start modeling what a true usage based pricing model should look like. What features do customers value more, how are they using them, and if there are more efficient ways to deliver them? These are the sorts of questions that start paving the way towards pricing your product to remain competitive in a world where customers are starting to see themselves having more control over how they purchase and pay for software.
The types of pricing models you can implement, and how to implement, is part of a lengthier discussion and varies greatly from customer to customer. But what remains consistent is that the way applications are being delivered and consumed is changing rapidly, and this will impact markets that today feel like they have nothing in common with a typical App Store customer. Getting your products license enabled, and implementing the intelligence to report on the information you’re trying to capture is an exercise well worth undertaking– and yes, there is an app for that.