Balancing free, subscription and paid software licenses

Laurie McCabe writes an interesting blog about computing for small businesses, though I think that many of his thoughts make a lot of sense to anyone interested in cloud computing, SaaS and online collaboration tools. A little while back, Laurie posted about the pricing model for subscription based SaaS services and whether it is time for SaaS vendors to get creative in their pricing models, to get their subscription levels to a more 'meaningful' level and prevent the fatigue that comes from vendors constantly asking for a little more for extra services. He posted an interesting survey (Poll: Do SaaS Vendors need new pricing models to attract more small businesses?), which show pretty decisively that a new model is something that customers would like to see.

This is obviously important for all SaaS vendors, since creating a model that helps them grow their subscription base without giving away their services for free, is going to become more important as the number of credible online service offerings grows.

In my opinion, as the traditional enterprise software companies enter this market as well, pricing models are likely to stagnate. Publicly traded companies are generally not in a position to get highly creative on their pricing, due to the accounting rules surrounding VSOE. This really only applies once they have started to sell and recognize revenue, and although I can't claim to understand the technical accounting rules for revenue recognition around starting new subscription services, I think that their stockholders may envision a watering-down of profits. For this, the smallers independent SaaS vendors should be able to stay ahead, as long as they can work out a model that benefits their customers and themselves.

If you have any experience, good or bad, with SaaS subscriptions, please leave a comment.

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