Insights 4 min

Why the pay what you use model kicks all of our asses

RZW pasfoto 2020
Ruben van der Zwan
CEO & Co-Founder
Why the pay what you use model kicks all of our asses

Why the pay what you use model kicks all of our assesImagine you had to pay for your groceries in advance. Each year, you’d had to make an estimation of the number of steaks, tomatoes and glasses of wine you were going to consume for the next twelve months, and you’d be charged beforehand. This means you’d be stuck with the same ingredients for an entire year, that you paid for way before receiving them. When it comes to food, this payment model is inconvenient but harmless (you gotta eat). When it comes to businesses paying for software licenses like this, it takes away all of your flexibility and the ability to shorten time to market. That can’t be right. My opinion? Forget about “Pay what you Own” and migrate to “Pay what you Use” and avoid lock-ins. 

Technical and financial vendor lock-in

You’re probably familiar with the term vendor “lock-in”, which means you’re stuck with a specific software vendor that keeps you from being agile. Many people think this vendor lock-in is just about technology (the so-called technical lock-in) as the traditional proprietary software vendors used to do work this way. They all worked with their own software standards, their own weird way of application integration or even worse, data protection methods.

However, the old license model, based on the principal of “Pay what you Own” also comes with a financial lock-in. You paid for licenses beforehand and you can’t change the contract for the months (or years!) to come. This old school license modal puts pressure on your CAPEX instead of your OPEX. And again this, “investment”, I call it a budget issue, holds back your agility.

“Given the current state of digitalization, you might say the license model based on ownership is as outdated as using salt as a currency”

Operational lock-in

But there’s more. Chances are that the pressure on your servers capacity differs per month, week and time of day. With the old license model, often based on CPU numbers, this means you always pay full price for the peak load, as you cannot scale up or down when needed. This provides you with a third lock-in: the operational one. Combined with the technical and financial lock-ins, it becomes impossible to adapt your services to actual demand unless you pay a lot (a lo-hot) of money for just owning the software license itself. You can’t switch vendor, which sometimes is needed to innovate, and you’re forced to predict a future that can’t be predicted. Given the current state of digitalization, you might say the old licence model is as outdated as using salt as a currency. 

Pay what you use for ultimate freedom

I believe that in order to be agile and to shorten time to market, organizations must avoid all forms of vendor lock-ins of their implemented software solutions. This is why the shift from pay what you use to pay what you own is so damn interesting. There’s no way traditional software vendors that only support the pay what you own license models are going to survive the call for more flexibility and freedom. We see this happen in the world of cloud providers. Famous examples like Amazon and Google offer cloud services where users don’t own the server capacity but simply “tap” computer power from the cloud, only paying for actual usage. The cloud providers offer the infrastructure and computer power, but what they really offer is freedom. There’s no technical lock-in, capacity can be scaled up and down, and you can shift your budget from CAPEX to OPEX. I can only say this is a brilliant development.

Middleware vendors are next

When you’ve made the switch from pay what you own to pay what you use cloud provider-wise, the next step in innovating your software stack is doing the same for your business software that comes on top of it. Companies like Salesforce, HubSpot and Pipedrive are famous examples of technology providers that are already there. But more importantly, middleware software providers need to support you in your quest for agility too. This is one of the reasons we chose to work with WSO2. They are one of the few technology vendors that offer both a pay what you own and a pay what you use model. When well implemented, the combination of WSO2 products and the pay what you use model helps you avoid all three forms of lock-ins. This is mainly thanks to the strict usage of open standards, open source and elastic usages subscription model. Moreover, such a construction gives comfort, as you don’t have to think about the computer power you consume. You can never go wrong, as you’ll only be charged for the power you actually consumed. This way, pay what you use models give you flexibility, cost-efficiency and a good night’s sleep as a welcome bonus.

Main conclusion: instead of thinking of a pay what you own license model where you risk all sorts of lock-ins, you might want to look into the new way of doing business: paying what you use and not a penny more.

What do you think about the future of the pay what you use model? Leave a comment!

As we’re on the subject of flexibility, time to market and innovation: download our white paper to learn more about the road to digital transformation.

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