In a previous post, I detailed some of the main elements needed to transform the ”consumerization of the enterprise” into a mainstream movement. This time, I would like to focus on one of the most important aspects of the new generation of enterprise software: pricing models.
For years, selling software to enterprises has been a privilege of the traditional enterprise software vendors. Armies of professionally-dressed, not very tech savvy sales people and ridiculously long sales processes is what we’ve known is required to convinced organizations to adopt your software. Those dynamics has drastically change in recent years with the initial renaissance we are experiencing the enterprise software industry. Technology movements like software as a service and efficient software delivery mechanisms such as application stores have provided organizations with the necessary flexibility to embrace the new generation of enterprise software packages. However, there is an essential ingredient that is required to simplify the software acquisition processes in the enterprise: flexible pricing models.
Capitalizing on the more efficient software distribution models at our disposal, the new generation of enterprise software has adopted new pricing structures based on the combination of two fundamental elements: subscription-based and fermium models.
New Enterprise Software Price Model = Subscription-based + Fremium
This formula seems to make perfect sense, whether the fermium model allows organizations to adopt the software at no cost the subscription based structure enables them to scale as the use of the software increases. I talked about the advantages of the fermium model in the enterprise in a previous post. While both the fermium and subscription-based elements should be foundational to new enterprise software packages are far from being sufficient to convince customers to adopt your software. Thinking otherwise, is clearly underestimating the complexities of the software acquisition processes in the enterprise.
At the end free is just free and cheap is just cheap
Establishing the correct pricing model for you and your enterprise customers is far from being a trivial endeavor. I’ve spent a lot of time thinking about this problem and I still manage to make a few rookie mistakes. While there is no direct pricing formula that guarantees success, there are a few key recipes that any successful enterprise software price model should include:
- Find a way to acquire customers at a minimum cost: If you are going to offer your software for free, it is vital you find different engines of growth to acquire customers at minimum expenses. See my post about engines of growth in enterprise software for more details.
- Provide a clear conversion unit and value: In order to convert your fermium customers to a paying model, you need a clear unit of measure and an easy transition path. Additionally, it is important that there is a clear value proposition for customers to upgrade to a paying edition.
- Answer all questions and mitigate risks up front: If you want enterprises to give you money for your software you need to provide a clear and easy way to answer the traditional concerns with enterprise software packages in areas such as security compliance and other traditional policies in the enterprise IT.
- You are going to need a sales staff: The no sales guy organization is one of those fantasies in the new generation of enterprise software that has no foundation. If you want to acquire big customers and are serious about becoming a winner in the enterprise software world, at some point you are going to establish a sales organization that can help navigate the complexities of the enterprise software process.
Certainly the elements listed above are not exclusive but I believe you will find most of them as part of any solid enterprise software pricing model.