At last week's IDC Software Leadership Council, opinions on Open Source were not the only surprise. The IT Execs from 4 companies (Manufacturing, Healthcare, Heavy Equipment, and Financial Services) were generally against subscription models for software. As the conversation progressed, two key statements came out:
- The CIOs did not want to go with subscriptions because if their business grew beyond expectations, they didn't want to pay the software provider more ("Why should we share the upside"?)
- The CIOs did want providers to reduce pricing if their business failed to grow to expectations
I think this was a case of two things - first, the natural expression of greed (wanting vendors to share the downside but not the upside) - but more importantly, a need for the industry to provide clearer guidance on standard pricing models. There was a clear conflation between value-based pricing and usage-based pricing in the mind of the customers. Additionally, they were concerned that in the long run it would be cheaper to go with perpetual licenses and pay maintenance, dealing with amortization internally, rather than pay a subscription cost which would never go down.
So where do we go from here to advance the understanding of the SaaS industry's offer to CIOs of mainstream companies? Are the doubters right, and will SaaS fail to penetrate large enterprises because of these issues?
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