A little while back Martin Thompson at the ITSM Review wrote an interesting blog on the complexity of IT service management (ITSM) tool pricing: http://www.theitsmreview.com/2011/09/ouch-o-meter/…I particularly liked his term "ouch-o-meter." It’s well worth a read.
It's something that has continued to puzzle me – what it would cost to buy AND implement an ITSM tool, PLUS any process or people-based change via professional services or third-party consultancy? Oops, I nearly forgot support and maintenance there too. To make matters worse, this is potentially an unknown and unbudgeted for cost that appears every 5-7years due to tool churn if us analyst types are to be believed (I have an outstanding action to include ITSM tool churn-related questions in a survey). But we need to park the churn issue for now and focus on cost or, more specifically, pricing models.
What did an ITSM tool cost in 2008? Or how long is a piece of string?
I cast my mind back to when I started as an industry analyst in 2008 and the complexity of not only which tools/applications, modules, or features needed to be costed-in but also the 30-50% "surcharge" for the professional services and 20-22% for support and maintenance. Then of course we needed to apply volume-based discounts and maybe something else based on the "customer-logo-appeal," the customer’s sourcing and vendor management strength/capabilities, and/or the sales person's need to hit quota at that point in time. I've probably oversimplified this too, feel free to educate me.
I get a lot of input into my research from speaking with software buyers and sellers, which I analyze and process to come up with firm conclusions and recommendations in my published research and forum speeches. I'm going to use this blog to air some work-in-process analysis, to solicit additional thoughts and information from you. Just recently, Ive been considering why people are talking about 'pay-per-use' a.k.a. 'utility pricing' for software, and to me, the disadvantages to buyers and sellers outweigh the benefits.
Software pricing should be simple but fair, value-based, future-proof and published (see The Five Qualities Of Good Software Pricing). Yes, a one-price-fits-all 'per user' fee isn't fair or value-based, but that doesnt justify the potentially horrendous complexity of tracking detailed usage. Role-based user pricing, such as SAP user categories, is a much better way to reflect diverse usage profiles.
Im not arguing against flexible, on-demand services, particularly for temporary needs, such as renting some CPU power for a few hours. I'm concerned about pay-per-use pricing models for regularly used applications. To me they would be: