11 May 2016 | 0
I was interested to read on The Register that Zach Nelson, CEO at SaaS vendor NetSuite, has committed to keeping the vendor’s monthly, per-user pricing the same forever. “It will be $99 forever for every user,” he said.
At first glance, that looks very commendable, admirable even, especially when rival Salesforce increased its core pricing three months ago.
But it should be pointed out that Nelson admitted NetSuite would be raising prices on its products and services as it adds new features. “We will definitely raise prices when we bring in new functionality,” he revealed, “as an example with increased capabilities, we charge a higher price than our old billing because it’s solving a new problem.”
That might all sound fair and reasonable to some people, but is it?
Take a look at that commitment to keep per-user pricing the same from a different angle. Essentially, Nelson was saying NetSuite would never reduce that cost to customers. Ever. But is it fair to assume the cost to NetSuite per user will remain the same in perpetuity? Might it reduce over time? It’s true that having a guaranteed fixed cost can be reassuring to the customer, but it’s also great for the vendor if it can lock customers in to paying the same price for something forever that might not cost as much to provide in the future.
And while Nelson was saying that, he was also more or less promising to increase pricing for everything around that per-user cost. His rationale for raising prices was that users would get more functionality, features and capabilities for their money. Again, will the cost to NetSuite of developing those improvements and supporting them be significantly higher than it was in the past to allow it to justify charging more for them in the future?
Traditionally, people have expected products (hardware or software) to add enhanced functionality and capabilities as they are upgraded but to retain the same pricing. In some cases, they’ve even seen the price of those products decrease. Once a price has been established in the user’s head, it can be hard to increase it. In the vast majority of cases, vendors have accepted the customer’s expectation of paying the same for more as the product improves and develops.
NetSuite appears to be trying to have the best of both worlds. By maintaining the per-user pricing, it is trying to give customers the reassurance that the company’s technology is retaining a price point they have become comfortable with. On the other hand, however, it is planning to bring in more money from the same customers by increasing pricing around its products and services as they are enhanced and improved.
Which sounds to me as if the overall plan is to charge customers more for NetSuite’s technology. If it succeeds, other technology companies might look on with envy because NetSuite would have proved that not only is the SaaS model a successful way of delivering technology, but it could also be an entirely effective way of charging more for it.