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Discounts in Focus as Markets Turn on Cloud Companies

As the shares of publicly traded SaaS and cloud computing companies plummet, one of the questions that’s emerging about the category is the extent to which companies are using discounting to boost short-term revenues and gain prestige clients. It’s a strategy that can have bigger consequences down the line than many investors realize.

“Nearly every company will offer some sort of discount,” says Todd Gardner the CEO of SaaS Capital, a firm that provides loans to subscription software business. “And they do so because it looks like a real boost to growth, because the ultimate cost of offering these deals doesn’t show up as a cost on the actual financial statements.”

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Discounting has different dynamics in a subscription-based model than a one-off sale. Discounts push out the number of years that it takes for a customer to generate profits, especially if the deals are extended (or even sweetened), as they sometimes are to retain customers.