Conventional wisdom says consumption-based pricing models are more advantageous for buyers than standard subscription models. Because cost is directly related to usage, customers can more easily evaluate their purchase’s value, controlling their spend with the flexibility to adjust based on changing business needs. A recent article in Forbes reported that the adoption rate for usage-based pricing has doubled from 27% in 2018 to a projected 56% in 2022.
SaaS providers are moving to this model because it is appealing to users and provides a lower barrier to entry, since customers can begin with limited usage and scale up as needed.
In this article, we’ll discuss some of the elements of consumption-based pricing – and why this model is not a good fit for integration platform as a service (iPaaS).
When Consumption-Based Pricing Works
A number of elements need to be in place for consumption-based pricing to work for customers:
- Pricing must be relatively simple and transparent.
- Customers need to be able to understand and find value in the usage metrics that drive the billing.
- They also need clear visibility into usage as well as the ability to manage usage and, therefore, their costs.
The model works very well with user-based services like Google Workspace where customers pay monthly for the number of user accounts they have activated in that month. They can check their active user account in the administrator portal at any time and adjust their user count to meet their needs. Since users cannot access the services without an active account, there is no need for overuse alerts.
It also works well for SaaS solutions that are transactional in nature. For example, Stripe and Square both charge a fixed fee plus a percentage of each charge. It’s easy to tie value to the metrics – number and size of transactions – and customers have complete control over and visibility into their usage.
Why iPaaS is a Bad Fit for Consumption-Based Pricing
The challenge for iPaaS vendors in implementing a consumption-based pricing model lies in selecting the right usage metric. TechCrunch identified these five requirements for usage metrics to make consumption-based pricing work for customers and SaaS vendors:
- Value-based: It should align with how customers derive value from the product and how they see success.
- Flexible: Customers should be able to choose and pay for their exact scope of usage, starting small and scaling as they mature.
- Scalable: It should grow steadily over time for the average customer once they’ve adopted the product.
- Predictable: Customers should be able to reasonably predict their usage, so they have budget predictability.
- Feasible: It should be possible to monitor, administer, and police usage and to provide visibility to the customer.
Since customers chose to invest in an iPaaS to meet a broad range of business process automation and data integration needs, it is very difficult to tie usage to business value in a simple and universal way. This, in turn, makes it difficult for buyers to scope their initial purchase or forecast what their cost will be as they scale. Often, the results are frustration with the inability to measure or manage usage plus shock when the customer is faced with renewal costs far exceeding their expectations or budget.
Usage metrics commonly in use today have focused on data volume and the number of steps or “tasks” in workflows. In their Magic Quadrant for Enterprise Integration as a Service, Gartner reports a number of examples of customer dissatisfaction with consumption-based pricing models.
In one case, they refer to a leading iPaaS vendor’s consumption-based pricing as highly transparent but still found many customers voicing challenges understanding the pricing model and forecasting costs for integration projects. In the case of another iPaaS solution, they cite numerous customers dissatisfied with their pricing for consumption-based workloads and having concerns about price increases post-acquisition.
Consumption-Based Pricing Throttles Automation and Innovation
Sticker shock and ugly budget conversations caused by poorly designed iPaaS consumption-pricing models are major problems for all iPaaS customers, including those using developer-focused, traditional iPaaS solutions. Customers who want to leverage modern iPaaS solutions where both technical and non-technical resources leverage the platform face a much bigger issue.
These organizations are choosing to invest in technology to democratize integration and encourage automation by enabling non-technical users to create and manage business process automation using no-code or low-code user interfaces. This is a challenge in the absence of a clear, value-based usage metric.
Modern iPaaS solutions are designed to be used by non-technical users with minimal training requirements. While the training can enable them to use the platform to integrate systems and automate business processes, it doesn’t turn those users into developers. In general, non-technical users will not be familiar with best practices for development or efficient integration design.
A well-designed iPaaS won’t require automations to be well-architected to work. However, if the pricing model is incorporating usage metrics based on the efficiency of the integration – like data volume, numbers of steps or tasks, numbers of API calls, etc. – then customers will have to pay more. In other words, they’re being punished for poor design integration.
Since the goal of a modern iPaaS solution is to encourage citizen integrators to innovate and increase business process automation, consumption-based pricing based on these metrics is in direct contradiction to value creation. Customers must either accept the significant cost increase at renewal and/or limit access to the platform to a select group of users trained in development best practices – which defeats the purpose of investing in a modern iPaaS solution.
A Pricing Model That Encourages Usage
In contrast, the Celigo platform is a world-class iPaaS designed to empower technical and line-of-business teams alike to automate business processes and enable the entire organization to be more agile and innovate faster than competitors. This requires a pricing model that will encourage experimentation and broad usage.
Celigo offers a simple pricing model based on the number of endpoint applications and flows with no limit on the number of instances, users, or consumption. Gartner has praised Celigo’s pricing transparency and cited the Celigo pricing model as a key point of value to customers seeking to incrementally adopt iPaaS capabilities.
Ready to get started with Celigo? Schedule a demo today!