Has Subscription Based Pricing Created Cloud 1.0 Companies?

SalesForce built its multi-billion dollar industry on providing Software as a Service yet many of the applications being sold within the marketplace are sold on a subscription basis. RemedyForce is an example of software that SalesForce sells as a service. RemedyForce is a help-desk service and even though this is hosted in the cloud, the pricing model is for $79 per user per month. This begs an important question. Are Cloud 1.0 companies using archaic pricing models as they provide software as a service? Shouldn’t this service be priced on the minute therefore allowing companies to pay for actual usage of the software? The purpose of the cloud is the provide software and infrastructure in the same manner as someone using electricity within a house. When the consumer needs power, they plug in and they only use what they need. In the RemedyForce model, what if you have a month where your help desk requests are at a low volume, why should companies be forced (No pun intended) to pay a flat rate for a service that will variably fluctuate.

The concept of selling software as a service on a subscription basis is what will separate Cloud 1.0 companies from Cloud 2.0 companies. The whole notion of selling cloud based software on a monthly subscription basis shows that while some companies are eager to provide the cloud, they aren’t as eager to give up their old way of doing business. It’s easy to see why businesses like this model. When you have shareholders, they want to see steady growth in profits. If you provide a service that is based purely on use, it is impossible to tell what your profits will look like from month to month, therefore creating uncertainty in companies that are publicly traded. While this is a disadvantage for large players in the cloud computing arena, this is a huge advantage for companies that aim to compete with SalesForce. It will be interesting to see which players arise in the Cloud 2.0 world and what type of competition SalesForce will have to endure in 2014.