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Updated: September 14, 2010 19:20 IST

The age of software pricing

Shalin Jain
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Shalin Jain
Shalin Jain

If the 1990s was the decade of making your pictures go digital then the past decade has been all about sharing them. If the 90s was about computerisation and development of Enterprise Resource Planning, Customer Relationship Management and other enterprise systems for businesses then the last decade has been about helping them being made available everywhere. There has been a paradigm shift in how software is produced, distributed, priced and consumed.

You may be using many of them today — Flickr, Facebook, Google Docs, Salesforce.com, to name a few. These are software products that are delivered as a service, referred to as SaaS (Software-as-a-Service).

The wide availability of Internet has enabled companies to produce and deliver SaaS-based applications. The applications have adopted a different pricing model compared to the traditional one-time licence fee-based desktop or web applications. Vendors not only provide you with an application but also manage your data and security.

Let's dive into a few popular pricing models that have emerged in the last few years.

Free software

There is actually no free model when it comes to SaaS applications, unlike desktop or deployable Web-based applications. The Free model is actually an ad-supported model or something that helps a business leverage or popularise another brand or product. YouTube is a good example that follows such a model. No user ever pays to upload or consume the videos. The revenue generated for the business is through advertisements. Other services that follow similar models are popular networking sites such as Facebook, Twitter and Orkut.

Freemium

This is probably the most popular pricing model for SaaS applications. There are plenty of Business-to-Consumer (B2C) and Business-to-Business (B2B) applications that use this model effectively. The idea of Freemium is to offer a free plan along with paid plans. Paid plans usually offer some additional benefits over the free plans. Free plans become a great starting point for users.

Flickr is a great example that follows this model. You can upload pictures and share with a free plan (with a limit of 200MB uploads per month), and enjoy unlimited viewing of your images but with ads displayed on the page. If your usage crosses that limit you can consider upgrading to their PRO plan (for an annual fee you can upload up to as much as 100 times more content).

Premium plans usually provide more usage, features, priority support or sometimes even additional data security and back-up.

Paid only: Free trial

This works on a try-before-you-buy basis. It is a more serious, built-for-business pricing model. Applications are usually available for anywhere from seven to 60 days as full featured trials.

Apple's MobileMe and Salesforce.com are good examples that use this model effectively. Many services require you to submit your credit card information when you sign up for the trial period and start charging you as soon as the trial is complete. While this could prove an entry barrier for some users, it surely deters non-serious users.

Most paid SaaS applications are available on monthly or annual recurring subscription fee without any upfront costs. It is possible to try before you subscribe and cancel anytime if you don't need the service.

Applications have become more affordable and the pricing adapts to the growth and size of your business. The new age pricing of software is a potential game changer.

(The author is Founder & CEO, Tenmiles Corporation, Chennai)

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