Is IT Ready for True Pay-as-you-go Software Model?

Several months back I wrote a post about how confusing licensing terms and conditions were becoming a sticking point for adoption of cloud computing. While customers are eager to take advantage of the pay-as-you-go usage model promised in the early days of the cloud, software vendors are understandably reluctant to give up their large licensing fees and ongoing support and maintenance revenues.

The Register has an interesting take on this, with an article featuring the comments of Adrian Steel, head of infrastructure and management at the Royal Mail, which has apparently moved most of its IT services into the cloud. Though Steel seems largely content with his company’s use of Microsoft’s Business Productivity Online Services (BPOS) and Office365 cloud products, he would like to see more flexibility in the pricing model.

Over the next five years, Steel predicts vendors will introduce pricing plans in which customers pay for a core subscription, then simply pay on a per-day or per-week basis for the software that is actually being used.

Steel says this would allow companies to buy software that they want to use only occasionally or for small numbers of users, without paying a premium for it. Ultimately, he believes vendors like Microsoft will likely focus on paring down their software so it contains only the most commonly desired features, while making more specialized features available for an added cost. Says Steel:

… Customers will start to say, "Well, I only use Word and Excel, so I only want to pay for the bits I use, and I’ll pay a premium for occasional access to the rest.”

This would obviously require a huge shift in how vendors like Microsoft develop and sell their software — one that quite honestly is a little difficult to envision right now. It’ll also require IT organizations to change their traditional procurement processes.

I suspect few IT organizations are beginning to think this way, but it’s a different story with business users who are adopting free applications from companies like Yammer and Box.net — applications that may or may not end up also being adopted by IT and upgraded to paid versions.

Writing for Forbes, Victoria Barret likens the distribution of free software to the early days of software-as-a-service. She says:

Freemium might have similarly big consequences. Instead of parading out research reports citing return on investment benefits, why not simply have customers – and by that, I mean employees — try the thing and measure the value themselves? Adoption will either happen or it won’t; then IT can decide if the service is worth the cost.