Setting a price (and limits) on software sales

The industry isn't sure how much to charge (yet) for SaaS applications. We know that. But the uncertainty's even helping to wreck pricing for traditional software, according to a new report.

Accenture has released a report examining the current state of growth in the software market. If the picture it paints was actually a piece of representational art, it would show a forest overwhelmed with undergrowth, tangled with clinging vines and thickets of trees long overdue for a culling. (And there would be a lot of squirrels...with quarterly quotas.)

The report notes an assortment of factors that, according to Accenture, are choking off growth avenues for software vendors: budget-conscious buyers who've gotten much too accustomed to off-list deep discounts, sometimes with no regard to the needs of the vendor's larger business; ever-increasing demands from channel partners and concomitant SKU complexity; an investment market that'll never again be as wild about software as it was back when; open source making inroads; and, yes, SaaS on the rise.

Channel pricing is a particular mess. The report uses Microsoft Windows Vista as an example, and not an extreme example by any means. There are five essential versions of the OS (Home Basic, Home Premium, Business, Ultimate, and Enterprise), and that's before one dives into the quirks and niches involved with channels, discounting, geography and such.

And SaaS? By 2011 Accenture expects it to account for one-fourth of the software market, but it's anyone's guess how pricing will work best -- maybe per-user, maybe by monthly subscription, maybe taxi-style with a meter running whenever the software's in use. In any case, though, it's clear that current software-pricing standards, however broken, don't serve as a useful model. Instead, say the writers of the report, the industry will find itself in launch mode for an entirely new product type -- not the software-model business as usual. Or unusual, as the case may be.

What's to be done? The report makes five recommendations for best practices, including the implementation of rules-based pricing that would hamstring those salespersons who throw in crazy discounts to make quotas. It's easy to imagine the howls from some quarters (however squirrelly) if that kind of change came to pass, but the future health of the industry may depend on it.