The future of software pricing excellence: An introduction

PwC’s pricing management framework
For each framework component, companies need to focus on the elements that drive pricing maturity and impact financial results.

Pricing excellence is achieved by a dynamic, proactive process of optimising the price of goods and services based on understanding what customers value, predicting what the customer is willing to pay and aligning various functional areas (finance, R&D, sales, marketing and other functions) to ensure products meet customer needs at attractive prices.

The future of software pricing

 

PwC's pricing management framework

The shift in the enterprise software sales model from license to services is amongst the most dramatic and traumatic upheavals in the technology industry since the unbundling of software and hardware more than four decades ago. Moving to a services-based model is proving to be tremendously disruptive to the industry’s internal organisation, management and processes, as well as its customer relationships.

One pricing model replaced by five


The future of software pricing

 

One pricing model replaced by five

PwC first alerted the industry in 2007 to the wide and deep impacts it could expect from the proliferation of software licensing models from perpetual to term as well as the cloud-based shift to SaaS. Since then, we have developed an extensive knowledge base of strategies and tactics to help the software industry transition to new business models—whilst still maintaining traditional models where the market demands it.

This transitional period is affecting the industry across the board. A small minority, primarily infrastructure software providers, remains committed to the traditional pricing model, at least for now. However, a small but growing number—start-ups but for a handful of notable exceptions like Salesforce.com—are focused exclusively on emerging models. The remainder, including most consumer and enterprise software companies, are combining both traditional and emerging pricing and licensing approaches in a hybrid model (Click on figure above right).

The majority of the companies in the industry, therefore, face significant challenges due to the hybridised nature of their current approach to pricing. Many companies currently find themselves straddling two or more radically different types of business models, incurring the costs and complexities of the traditional and the emerging models.

This paper is an introductory overview of the changing ways that software is valued, priced, delivered and consumed.