In his recent post Why your business should consider cloud computing, Stuart explains numerous advantages that businesses are seeing by moving their applications to the cloud. One of the main reasons cited, and probably the most important consideration when making such a decision, is cost.
Cloud vendors are able to realise economies of scale by productising a platform and commoditising a service. Why would 30 firms want to build and support their own version of the same system when one provider can do it properly and charge a fraction of the cost?
Being in the business of managed cloud services we realised that pricing was key. Reducing the total cost of ownership was not enough as, fundamentally, clients were looking for a predictable annual fee that they could budget for and know that this budget would not be compromised.
We looked at what our competition were doing and realised there were many potential pricing models (and still are today), including:
- Per site pricing (with maximum user limit per site)
- Per site pricing (with maximum data storage per site)
- Per user pricing
We realised that none of the above would suit our clients as none would deliver a predictable fee. How does a client know how many users there will be – after all, it is a collaboration platform that includes internal as well as external users. How does a client know how many sites they will require in the next year?
Some key things we have learnt about pricing in the cloud:
- Base your pricing on one variable only, not a combination of variables (i.e. choose one from users, sites, data storage, documents etc)
- Once you have decided on that variable, price in bandings, not per asset (this will allow your client to accurately predict their requirements and therefore their budget)
- Entry pricing should be sufficiently low, allowing your client to effectively ‘trial’ the platform. If your application is any good, they will come back for more!
- Economies of scale should kick in relatively quickly (after all, we want people to use our applications – and don’t underestimate the viral effect that follows from wider usage)
- Keep the application fresh – always enhance your platform based on feedback from your clients and don’t charge for this work unless absolutely necessary – this should be built in to your service ethos (after all, the ‘salesforce.com’ of your industry is always lurking behind the scenes)
- Keep the service levels high at all times as this industry is characterised by low switching costs for your clients and low barriers to entry for your competitors – don’t forget, there is no excuse for poor services as you are charging your clients an ongoing fee
