Startups listen up: you've got a pricing problem

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Pricing is the symptom, not the problem

I think this article hits the mark on the impact the recession will have on prices, but the solution won't be found in a vendor's pricing. In the end, the vendor has no control over price, only costs and the product offered. Price is determined by what people are willing to pay. A creative pricing model may help, but it will not fix this problem. Only doing the things you need to do to change the underlying cost structure of your business or the differentiation of your product will. Then, you can meet the price that the customer is willing to pay.

If SaaS vendors are going to fix their pricing problem, they need to focus on their cost and product problems that are creating it.

• Most SaaS companies have not brought down acquisition and support costs through economies-of-scale and automation in the same way they have brought down technology TCO so their cost structure cannot support their current prices, let alone lower ones

• Most SaaS companies are building commodities that are far simpler than their licensed fore bearers (as you point out). They are not creating differentiation that would demand higher prices through the one thing that makes them different: they are part of the Web.

• The cost advantage of SaaS will tap out at a certain scale and complexity. It is built into the economics, because at some point variable costs trump fixed costs. The only way to fix this is to return to a) & b). Lower your cost structure or create something cool that can only be done on the Web.

by Joel York

at Chaotic Flow

Posted by: york_joel   Posted on: 12/05/08  (Edited: 12/05/2008 @ 08:06) You are currently: a Guest | Members login | Terms of Use

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