Shortly after posting eVapt’s profile, I ran into this article.

Basically it’s an article explaining how Micro ISVs can survive the SaaS game. Essentially Gord from ElastX argues that the biggest problem for Micro ISVs is the subscription model. In particular, the subscription model requires users to be committed before using the software. This means customers are required to pay their monthly fee, before using the software. In addition, even though most SaaS vendors operate on month-to-month fees; these fees are generally built into contracts that last several years. So even though customers are paying per user per month, you’re locked into this one vendor for the duration of a year or two. This is the type of commitment we’re talking about. It’s not exactly Pay-As-You-Go in the purest sense. And as a result of this fear of committment, some vendors will see high attrition rates.

Gord explains that Micro ISV’s have to adopt the same pricing model as cell phone carriers. Here’s an excerpt:

I think the right model for microISV applications is what I call the “cell phone model” … That’s what I think a SaaS platform for microISVs should look like. The user creates an account once, and then has immediate access to any microISV app in the library at a reasonable hourly rate. The SaaS provider takes care of metering usage, remitting usage fees to the ISV, and everything else.

Basically Gord is saying that customers should only be billed for what they use. Customers are scared of paying monthly fees for each user while adoption among employees is failing. Instead, pricing should be metered. Either based on a fee per login or per hours of use. This gives customers the greatest amount of flexibility and control of their subscription.

Although I do agree with Gord, there’s one thing that I’d just like to point out. Sure I can see this model being popular for small companies who have limited budgets. Small mom&pop shops or independent entrepreneurs will like the fact that they’re paying for exactly how much they use the service. However, for large companies, a less granular pricing model (like the per month model) may be more cost effective. In fact, many would rather make a small commitment and focus on driving adoption rather than having one foot in the circle and one foot out. Even financially it’s more sound, as they can project their expenses in advance without playing a guessing game.

That’s not to say Gord is wrong. When looking at how to structure your subscription, considering a meter-based pricing model. In some cases it may drive your profitability, in some cases it may not. It depends on who you’re marketing to.