Practice: Pay-Per-Use

With pay-per-use systems, you charge for every time the system is used.
Money is the ultimate feedback. Not only is it concrete, you can also spend
it. Connecting money flow directly to software development provides
accurate, timely information with which to drive improvement.
  Lots of software is already pay-per-use. Telephone switches, electronic
stock exchanges, and airline reservation systems all charge you a fee per
transaction. While pay-per-use has business advantages and disadvantages,
the information it generates can help improve software development.
  The ultimate form of pay-per-use I've seen was in a messaging product.
Users were charged per message. Each story in development was deliberately
selected to encourage more messages. Support for a new handset, for
instance, came with both a cost estimate and a revenue estimate. The team
analyzed the usage of the system to provide feedback for the accuracy of the
revenue estimates. The team used this information to optimize both cost and
profitability.
  Today's typical arrangement requires the customer to pay for each release
of the software. Pay-per-release opposes the supplier's interests and the
customer's interests. The supplier is selfishly motivated to have lots of
releases, each containing the least possible functionality necessary to get
the customers to pay. The customer wants fewer releases (because of the pain
of upgrading), each containing lots of features. The tension between the two
sets of interests reduces communication and feedback.
  Even if you can't implement pay-per-use, you might be able to go to a
subscription model, in which software is purchased monthly or quarterly.
With the subscription model, the team at least has the retention rates (the
number of customers that continue to subscribe) as a source of information
about how the team is doing. An even smaller change of business model is to
weight contracts more toward support fees and less toward up-front revenue.
  One objection to pay-per-use is that customers want predictable costs. If
the price advantage of pay-per-use is large enough, customers may not mind.
A team using the information provided by pay-per-use should be able to do a
much better job than a team relying for feedback only on license revenues.