Companies Look to Pay Tech Vendors Based on Business Outcomes, Not Usage

livemint.com:

A growing number of technology providers are pricing their products and services based on a promised outcome rather than charging customers set subscription fees or on a per-user basis. While still far from the norm, the uptick in such pricing models has put pressure on those vendors to offer more flexible pricing options to attract and retain increasingly budget-conscious customers, analysts say.

Outcome-based pricing models charge customers some percent of reaching a business goal like increased revenue or cost savings. Value-based models, which can overlap with outcome-based models, are also becoming more widely adopted as alternate pricing systems.

They include things like growth in registered customers or the amount of data for artificial intelligence. Recent interest in outcome-based pricing—which has been around for decades but not gained widespread traction in technology—is being driven by tighter technology budgets and customer pushback against big cloud-computing charges, analysts say.

Most cloud providers charge customers based on the amount of computing power they use, on an as-needed basis, but that can lead to huge, unexpected cloud bills when usage surges. Forty-three percent of leaders at technology vendors said customers are changing their focus from buying solutions to outcomes, and 23 percent said customers are putting more focus on business value, according to a survey last year by research and consulting firm Gartner.

Forty-six percent of tech firms face challenges in reaching revenue goals, Gartner’s survey this year found, and can expect to make more pricing concessions as a result. At the same time, price hikes for subscriptions to business software—still the most common method of charging for