Recently, Zoho provided us with a provocative story about declining transparency in enterprise cloud software pricing. The author suggests the reasons for this were:
A common answer is competition. If software companies were required to post their prices online, customers could comparison shop, theoretically forcing vendors to compromise on their products to compete on price.
This is problematic thinking for two reasons. One, there are many successful and proficient vendors that do publish their pricing – there are 48, after all, on Montclare’s SaaS 250. And two, it’s suspicious to customers, especially those who believe pricing transparency is a sign of an honest company.
That story resonated well with readers but is that the whole enchilada?
Buyers know that enterprise software pricing can readily be characterized as a labyrinth with minefields strategically placed to ensnare the unwary. It doesn't matter if there is a publicly available price list, assembling a bill of materials for implementation is problematic for a variety of reasons.
Most frequently, we see a sudden or unexpected shifting of the goalposts so that what was once measured one way is measured another, more expensive way. It is hardly surprising then that colleague Brian Sommer often refers to the pricing issue as wallet fracking. Is there a way out for SMBs?
Are SMBs different?
I knew from past experience that VersAccounts adopted a transparent pricing policy, extending it to include scenarios where a standard price doesn't fit but requires additional functionality. I find this a useful way to assess what I might need to pay but, according to Sunil Pande, CEO VersAccounts, that's not always the case.
One of the reasons I chose to speak with VersAccounts is because, in the past, they have provided very good case study references. We have no commercial relationship.
Check out the full conversation above to discover how this topic impacts a software vendor's ability to monetize in a trusted manner. It's much harder than you might imagine.
Part of the issue stems from the fact that the problems SMBs face are no different to those faced by their larger cousins. According to Pande, this is especially true today, where there is often an expectation that business will be conducted globally. That brings levels of complexity that are common to businesses of all sizes. Coding for those situations is not materially different whether you are an SMB or global enterprise.
But then the SMB market exhibits characteristics that are fundamentally different or absent from those that characterize the large enterprise. For starters, most SMBs have little or no IT resource. They, therefore, have no technical yardstick against which to make good functional comparisons and are, therefore almost always reliant upon what the vendor is telling them. Or what they find on comparison sites like G2Crowd or Capterra.
I'd argue that while those comparison sites do a good job, they can rarely if ever, provide the kind of detailed functional comparison needed in most evaluations. That's a job for the very well informed buyer, assisted by external, impartial expertise.
What's more, the discovery process during which the vendor finds out what's really needed often uncovers required functionality that is well beyond the base offering and that has, in turn, to be assembled from additional modules. On the flipside, customers are loathe to pay for functionality they may never use. When seen through that lens, it is easy to understand that while price transparency is a generally good thing, how it is communicated becomes critical.
Finally, it is a fact of life that SMBs want champagne service at beer prices. I can see how that matters for commodity software such as financial backbones or payroll. But it gets harder to justify that approach when considering, for example, complex distribution and e-commerce capability where rule setting alone can add insane amounts of complexity. Again, we're back to communication and expectation setting.
Trust and pricing
In our conversation, Pande said that his company's early forays in transparent pricing didn't work out as well as they had imagined. He says that with so much information available on the Internet, prospects have done a lot of research before they reach you but have not necessarily built up a full requirements picture. So what often happens is that prospects come to the table with a fixed idea about pricing in mind, based upon what they have seen, long before they speak to a vendor.
When those vendor conversations unfold, expectations that had previously built through available information suddenly get thrown out the window and what had started as an implied trust-building relationship goes south.
In response, VersAccounts has endeavored to simplify its offering across three broad categories of user types. In addition, it shows examples of what happens when a buyer needs additional functionality. It's a step forward and one that Pande hopes will help the company maintain enough transparency that prospects have confidence they're not going to get wallet fracked.
At the same time, VersAccounts co-develops in selected cases. Pande says that the company doesn't undertake this type of work on a time and materials basis but works with customers to build out required functionality that's then priced as if it is an existing module. Paraphrasing from our conversation:
As a private company, we have flexibility in the way in which we build our model. We see this way of working as part of the manner in which we develop trust relationships.
Pricing is a tough topic at any level and while our focus is on the needs of the buyer, we recognize that vendors have to make a profit.
The tendency of software vendors to either price every bit and byte for fear of leaving money on the table, confusing prospects with unfathomable price books or, in some cases, appearing to dream up figures on the fly to satisfy the salesperson's quota, should be relics of the 20th century. Sadly that's not the case. Add in 'call for pricing' and it is hardly surprising that relationships between vendors and buyers are tense.
On the other hand, there is a natural tendency among buyers to want a deal. SaaS pricing doesn't lend itself to that, especially when coupled with price transparency.
During our conversation, I wondered how the tech-savvy chops of the upcoming generation of decision makers play into the pricing scenario. Do those who have grown up with technology have a better appreciation of technology such that they understand where the value is delivered? Yes and no.
As I came away from our conversation I felt that VersAccounts has made the best of a difficult decision-making situation but with the benefit of not being accountable to VCs or institutional investors whose priorities are rarely aligned with those of buyers.
I wonder whether the company could go one step further. While not discussed on our call, I would welcome the inclusion of a price configurator. That would allow prospects to better understand not only what their future state landscape might look like, but the expected costs of operating a given set of functionality.