Disruptive Innovations? On-demand Pricing Models and Vendors
P.J. Jakovljevic - April 1, 2005

Effect of Transition on Vendors

Quick ramp-up, lower implementation, and the almost non-existent support costs of hosted software services makes utility or on-demand pricing appealing customers. However, vendors embarking on these new pricing models, which treat software as a service, are sure to experience growing pains. Traditional upfront licenses provide a “big gulp” of revenue which decreases between releases. However, utility or grid computing, which is more or less a pay-as-you-go software-as-a-service, generates bite-size chunks of recurring revenue. Comparable revenue from the new model will emerge, but only over a longer period. This and waning technology-related services (and its revenue) can produce unsightly red marks on income statements. Moreover, eventual success is still, by no means, assured...