Metered pricing model in IT services
It is time for IT services to enter the realm of metered and utility model of pricing (pay-as-you-go). Service catalogs are priced based on their value and complexity. Enterprises get a transparent view of their consumption and just like in other mature SaaS offerings (ex: AWS) , they are able to control their spend on IT service delivery in line with their business needs.
In the previous blogs, we looked at the how a Business model shift is enabled by Digital Service Delivery. We move from a buy/build/operate model of platforms/products to a subscription model of digitized services. Catalogs become the unit of transaction that can be subscribed from an App-store. In this blog, we look at how the pricing model moves from fixed to variable costs.
The nature of Commercial agreement for large Managed-services deals have, in the past, required Enterprises to be locked-in with a select set of service providers for an extended period. The value of such contracts is also high. However, with rapidly changing business needs and fast evolving technologies, such long-term commitments are no longer relevant.
Enterprises are looking for options to procure services from multiple providers with shorter procurement cycles and those that can guarantee faster realization of value (time-to-market).
They do not want to be tied to proprietary solution approaches. They are looking for innovative solutions that can be make their businesses agile & competitive. In such circumstances, the new Digital Service Delivery, where services are offered as catalogs and published by providers over an App-store is a welcome relief and empowers them in more ways than one.
The new model moves Enterprises from fixed to variable costs. Each catalog will be priced based on its value and complexity. Organizations have clear visibility into the price of such catalogs at the time of subscription. Enterprises are only paying for successful delivery of the outcomes, not locking budgets for people waiting to handle tickets.
The per ticket pricing can drop anywhere from 30–70% or more as we move from L1 to L2 and L3 .
2. Service Metering
SaaS offerings such as AWS have already introduced the concept of Metering where Infra resources can be procured and paid for, based on the capacity and the duration of usage. It is now time for IT Services to follow suit. Enterprises get visibility on the consumption at an itemized level for various automated catalogs.
Metering helps Enterprises to measure the value that catalogs have to offer at a service level. Metering gives them the much-needed pricing transparency. They can also evaluate the performance of various functions.
They can decide to unsubscribe services that are no longer needed. Based on the data insights, they should also be able to drive more delivery thru Zero touch by subscribing additional catalogs.
3. Capex to Opex:
Building new services in Enterprises requires additional cost and effort. In challenging business conditions (like Covid) , Organizations are not willing to part with budgets unless they are critical. With new Digital Service model, there are no complex licensing or automation charges up front. The cost moves from Capex to Opex for service subscription and delivery.
4.Maneuver spend to align with business cycle
In the last 2 quarters, businesses have taken a hit on their revenues, but their internal cost of Operations has remained constant. At a time, when every dollar saved will help the business, such fixed cost structure only hurts Enterprises further.
By variabilizing, the new Digital Service model aligns their cost structure in sync with the business demand, a much-needed relief in the current circumstances.
On the whole the variable pricing lever is extremely beneficial for Enterprises in reimagining their Service Delivery, not just thru the current crisis but also to emerge much stronger in the next several quarters when businesses are likely to innovate in newer ways not anticipated earlier.
In the next blog, we will look how the Service Delivery will transform UX model in the coming years and how a unified user experience drives a better productivity and engagement from users.