Post Freemium: Value-Based Models

by Sorell Slaymaker

Moving past freemium to a value based business model that shares the risk represents the next evolution in cloud based services.

Thanks to the cloud, gone are the days where an enterprise pays for software and services upfront. The consumption based pricing that the cloud service providers offer is one of the compelling drivers for cloud adoption. Freemium, where a cloud providers offers their base service for free and then charges a premium for additional value added features is growing in popularity. The next step in the cloud business models is to move away from consumption based pricing to value based pricing.

Value based pricing represents a cloud service provider sharing the risk that their service offering will result in direct top line revenue growth and/or bottom line cost savings. It is not enough that the service is consumed, but that the service contributes to business outcomes. The challenge with this model is that the reporting and analytics capabilities of most cloud service offers are limited.

Let’s take the Unified Communications as a Service (UCaaS) market for example. Cisco’s Spark, Microsoft’s Skype for Business, Unify’s Circuit are all promoting new capabilities for the digital workplace. The number of emails go down, collaboration improves, projects get done quicker are among the claims. Getting to the next level of detail though and measuring the true business value on how much more productive people will be and the change in business outcomes, remains elusive.

The Contact Center as a Service (CCaaS) market, is another one that should move from consumption licensing based on number of named agents to one that is value based where the CCaaS provider shares the risk to improve sales and/or lowers the cost per interaction. The CCaaS provider can get a percentage of the additional revenue and/or cost savings.

Business leaders do not care about technology or consumption, they care about business results. IT leaders are too focused on consumption. As business leaders make the decisions on which cloud providers to use, the cloud providers that offer greater business value will gain market share.