Cloud and SaaS are changing PLM software. The new technology makes SaaS PLM easily accessible and available instantly to customers. New data management technologies allow customers to share data and go beyond traditional PLM databases. SaaS is also transforming business models by introducing subscription business models.
Today I want to talk about SaaS pricing and share some ideas about why traditional pricing models selected by the majority of PLM companies can be potentially a wrong thing for SaaS PLM.
Let me start with a simple fact – the majority of PLM companies are shy to share their pricing models online. Check my blog from the last year – Looking for the cost of PLM software online in 2019? You’re almost out of luck… Back in 2019, only a few companies offered transparent prices (Autodesk Fusion Lifecycle, Aras, and OpenBOM). Everyone else provided “contact sales” buttons. The situation changed for the last year and I was happy to see that more PLM vendors are now providing prices online. You can see it for Propel PLM, Upchain, and partially Dassault Systemes 3DEXPERIENCE also provide pricing. (If you are aware of other vendors, please share links with me). While it is a good move towards “SaaS normality”, the question I want to ask today is about what is the right pricing model and how it can impact PLM business.
Let me start at the end. The traditional per-user pricing model is dominant in SaaS PLM. Even price per month is advertised sometimes, you can see “billing annually” is in small prints. So, why do so many SaaS PLM companies charge per user? Is it the right model?
It is probably a history that setup CAD and PLM companies to per-user model. Back in the days when CAD packages were delivered using CDs or floppies, the user model made a lot of sense. It was a “per delivery” charge and you paid for as many deliveries per user you needed. If anybody here old enough to remember “hardware dongles” that were provided together with CAD software to ensure only one copy can be used. It was no subscription fee back in those days. It was a one-time license, which was equal to a “user”.
SaaS is changing the business. No physical deliveries anymore. Most of the companies want to move to recurrent revenues and encourage customers to use SaaS subscriptions. Nevertheless, it is hard to teach old dogs new tricks. So, SaaS PLM companies introduced per-user pricing.
I’ve been thinking about pricing models and examples when efficient pricing models created a huge business success. Here is a thought I want to share – a good business model and pricing should encourage abuse and not limit the usage. If you do so, the business will be growing. Obviously, this is what all businesses are looking for – growth. And unfortunately, this is exactly what the per-use business model doesn’t do. The per-user model disconnects value from growth. Let me give you some ideas.
Not all PLM users are equal
Back in the days when CAD systems were sold to a single user, the price was directly connected to the user. But PLM is a product that shows the value when used by everyone in the company. Even more, huge value can come from connecting contractors and suppliers. Try to set a single user price for this group? You will either leave money on the table or get stuck by attempting to sell expensive per-user subscriptions to people that need PLM systems once a month.
User login sharing. No scale. No audit.
Unless you’re not honest, you will agree that at least once shared login for one of your subscriptions with somebody else. By attempting to bring everyone to the same “per-user” price, be ready that in different forms, customers will cheat with per-user logins. As a result, there is a good chance that you will limit yourself by selling fewer “users” than customers potentially interested to buy. I have to admit that at least one company (Dassault Systemes) provides a-la-carte granular packages priced individually per-user. I need to explore more, but it reminds CAD licensing with hundreds of options mixed with the ideas of the Chinese restaurant menu with many options.
Value and Subscriptions
The way to find the right business model and pricing is to connect it to the value. So, if PLM is about building a single version of the truth and sharing it between all users, you better figure out how to reflect the value in your subscription model. If you have a value for a single user, per-user is the right choice, but if you see the value of using your product by an entire company, you better remove the limits otherwise, your growth will be limited. So, picking the value and metrics is really important.
Technology to support business models
This one is important. How technology can enable business models? Subscription is a child of cloud technologies and SaaS. But not PLM systems are born equal. Those that were born 20 years ago are trailing a lot of technological legacies that will limit the way technology can be consumed. And if you need to set up a separate set of servers for customers or pay a royalty per user (or account), your business model will be limited. Real SaaS technology is leveraging the power of shared resources and therefore can be very powerful to support novel business models. But the devil is in the details.
What is my conclusion?
A good SaaS PLM pricing should encourage abuse and lead to business growth. The value of modern PLM is to connect companies and help them to share valuable information, glean intelligence, and support decision processes. It can only be done by the explosive growth of SaaS PLM technologies and not limiting them to a per-user base. We are at the very beginning of SaaS PLM development. It is important to have the right combination of technology and business to support growth. Just my thoughts…
Disclaimer: I’m co-founder and CEO of OpenBOM developing cloud based bill of materials and inventory management tool for manufacturing companies, hardware startups, and supply chain. My opinion can be unintentionally biased. At OpenBOM SaaS PLM, we provide a risk-free monthly subscription.