RE: Practice: Pay-Per-Use

Luiz,

I haven't thought a lot about the kind of systems you describe.
Monthy/quarterly subscription would be a step towards to PPU compared to
license+support. Another accountable pricing approach would be gain-sharing,
where you figure out what kind of metrics are supposed to improve based on
use of the system and share the cost savings, revenue increase, or
profitability improvement between the producer and customer. 

Do you have a particular system in mind? Perhaps with more context the group
can come up with more concrete ideas.

Kent Beck
Three Rivers Institute

> -----Original Message-----
> From: xpbookdiscussiongroup-hHKSG33TihhbjbujkaE4pw@xxxxxxxxxxxxxxxx 
> [mailto:xpbookdiscussiongroup-hHKSG33TihhbjbujkaE4pw@xxxxxxxxxxxxxxxx] On 
> Behalf Of 
> Luiz Esmiralha
> Sent: Friday, May 06, 2005 10:01 AM
> To: xpbookdiscussiongroup-hHKSG33TihhbjbujkaE4pw@xxxxxxxxxxxxxxxx
> Subject: Re: [xpe2e] Practice: Pay-Per-Use
> 
> Kent,
> 
> I feel this payment model covers transactional systems pretty well.
> But I have experience with Business Intelligence systems (you know,
> reports and analysis tools for the Big Kahunas) and it´s very hard to
> quantify the value of these systems based on a pay-per-use model.
> Have you ever thought about how BI systems fit Pay-Per-Use?
> 
> Thanks a lot,
> Luiz
> 
> On 5/4/05, Kent Beck <kentb-ihVZJaRskl1bRRN4PJnoQQ@xxxxxxxxxxxxxxxx> wrote:
> >  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.
> >  
> >  
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