Usage-Based Pricing for IT Performance Management Tools
One CFO’s Problem is Another CFO’s Solution
August 09, 2010
Bojan Simic - Trac Research
Share this

One of the top reasons organizations are becoming more interested in public cloud computing services is the flexibility of aligning the cost of IT computing resources with changes in business demand. Back in January, I published an article that discussed how organizations would be very interested in having a somewhat similar model for deploying IT management tools, but not many technology vendors are willing to offer this type of capability for delivering their products.

The key message that end-users were sending was: if I can pay only for what I use for hosting my applications in the cloud, why can’t I do the same with IT management tools? There are two types of obstacles for vendors in taking this approach, and they can be summarized as technology and accounting. It is very difficult to apply this model if the management solution is not delivered on-demand or as Software-as-a-Service (SaaS). The good news for end-user organizations is that management solutions delivered on-demand are becoming increasingly available.

Performance monitoring solutions such as NetEvidence, Absolute Performance, AccelOps and New Relic have been providing this type of delivery method for some time, while companies such as Nimsoft, BMC and HP are taking their products that were originally designed to work as licensed software and starting to deliver them as SaaS. However, the pricing structure for the majority of these products is still not based on usage.

Additionally, offering usage-based pricing for IT management tools is something that would drive these companies’ CFOs absolutely insane, as the process for recognizing and projecting revenue would have to change dramatically. Vendors first have to do their homework internally and figure out how to make money using this approach, but even if they can do that, applying this type of approach to their internal financial planning processes could be very difficult. This is part of the reason that many publicly-owned IT management companies are not particularly excited about adopting this pricing model.

However, even though changing pricing structures is not an easy thing to do, it is something that resonates well with end-user organizations, and vendors that recognize how big an opportunity this presents are willing to jump over all the hurdles to take advantage of this opportunity. Nimsoft recently announced usage-based pricing for their on-demand solution, and some other vendors will be making similar announcements later in the year.

This type of pricing model is especially appealing for service providers, as it makes it easier for them to build their services around products that are priced based on usage and, therefore, make their services more appealing for end-user organizations. Even vendors that traditionally have been providing hardware solutions are now recognizing these opportunities. Expand Networks, a WAN optimization vendor, recently announced a new pricing structure for service providers that allows MSPs to pay only for what their customers actually use.

As deployments of cloud computing services become more prevalent in the enterprise, how other enterprise IT technologies are being deployed, priced and managed will change. If cloud providers that are hosting and managing services that your employees and customers heavily rely on can charge you only for services that you are using when you need them and still make a profit, there is no good reason for companies that are monitoring the performance of these services not to take the same approach.

The good news is that this type of pricing model is becoming more available, and if the CFOs of IT management companies don’t like it, that is too bad … because your CFO will love it!

About Bojan Simic

Bojan Simic is the founder and Principal Analyst at TRAC Research, a market research and analyst firm that specializes in IT performance management. As an industry analyst, Bojan interviewed more than 2,000 IT and business professionals from end-user organizations and published more than 50 research reports. Bojan's coverage area at TRAC Research includes application and network monitoring, WAN management and acceleration, cloud and virtualization management, BSM and managed services.

Share this