Original URL: http://www.theregister.co.uk/2011/06/24/cloud_saas_unbundled_pricing/

Software as a service: Separating the bells from the whistles

Stack it high, sell it cheap

By Lucy Sherriff

Posted in Cloud, 24th June 2011 13:00 GMT

The most obvious attraction of software as a service (SaaS) is that it gives small firms access to software they could not otherwise afford.

In exchange for handing their data over to the care of someone with a huge data centre, they also benefit from economies of scale. But since there is no such thing as a free lunch, these kinds of cash savings come with a loss of control and customisation.

One size doesn’t fit all – yet.

As with public cloud services, where the costs of customising an offering can rise to the point where a private data centre makes more economic sense, SaaS really makes sense only if the generic version works for your company.

Moving experience

But within the next five years, this could – and should – change. So says Adrian Steel, head of infrastructure and management at the Royal Mail. He is perhaps uniquely qualified to talk about these sorts of things, having moved the Royal Mail’s IT, lock stock and all 30,000 barrels, into the cloud.

That meant moving from standard desktops with many and varied versions of many and varied software packages to Microsoft’s BPOS and then Office365 cloud offerings.

Steel argues that although cloud services have made a huge difference to his organisation, on-demand software hasn’t quite lived up to its name yet.

“At the moment you pay, say, £40 per year for Microsoft’s BPOS. But if you don’t use it all the time, wouldn’t it be better to pay £3 per week for it when you need it?” he says.

Steel predicts that the next five years will see provision of SaaS becoming increasingly granular: you will pay for a core subscription, and for the rest on a per-day or per-week basis.

Difficult customers

Ultimately, the dilemma of choosing between off-the-peg and customisation will resolve itself as software delivery becomes commoditised. As SaaS customers become more demanding about itemised billing, providers will have to respond with more flexible packages.

“I might like to be able to use MS Project, for example, but I don’t need it often enough to make it worth buying the full version,” Steel says.

“I’d love to be able to access it on a consumption basis, pay a small premium for short-term access and add it to my bill. That’s good for me and for Microsoft.”

People won’t want to pay for bells and whistles that they never use

As cloud services become more widespread, companies will become choosier about which software they are prepared to pay for, he argues.

Although the core functions of programs like Excel are unlikely to prove controversial, people won’t want to pay for bells and whistles that they never use. This in turn will drive a change in the way developers put packages together.

Supermarket sweep

“Companies like Microsoft will end up investing more of their development resources in the core, mainstream programs. This is good for everyone, moving us to a stack-it-high, sell-it-cheap model for software – a bit like supermarkets,” says Steel.

So, more of Redmond’s finest will work away at making Word do exactly what it needs to for the largest number of people, with the add-ons taking a back seat. This is less good for those who actually want the add-ons, but Steel thinks people who want specialist functions should be prepared to pay for them.

Customer demand will drive a splitting of bundled software. At the moment, you either buy Office, or you don’t. Steel says this will have to change, especially since from a billing perspective, it already has.

“With Office365, the version of Office asks you every month if you have paid." he says. "And if you haven’t, things switch to read-only. Just like a gas bill – if you don’t pay, it gets switched off.

"But the flip side of that is that 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.” ®