Shift to Consumption-Based Cloud Models Create New Challenges

On April 7th, The Information hosted a roundtable discussion with business leaders to discuss the shift to a consumption-based cloud pricing model. The event and conversation, sponsored by PwC, was confidential. We want to share with our subscribers several key themes business leaders are facing in the fluctuating cloud consumption model at scale.

One of the most significant challenges in the shift to consumption-based cloud pricing is a lack of consensus on core metrics to measure success. More traditional cloud pricing models (i.e. per person, subscription, perpetual license) have been relatively easy to implement and report on. With a subscription based model, for example, annual recurring revenue (ARR) is the core metric. There is no clear core metric yet for consumption-based models.

Meeting the customers new needs and expectations with this shift is also uncharted territory. Customers want assurances that they are receiving the usage they are paying for. Questions about how much rollover usage is allowed also surfaced.

Sales team compensation is also top of mind for executives delivering XaaS consumption-based pricing. Since sales and usage happen over the course of the year it is difficult for companies to find even an internal metric for sales targets, commissions and quotas.

Consumption-based pricing will depend on consumer demand. While the industry is in the midst of transformation, the predominant sentiment is a mix of subscription, on-demand, consumption, and discounting will provide the best service to meet the needs of most clients. As cloud bills skyrocket, we’ll continue to keep an eye on the industry.

To find out more about the XaaS business model transformation from PwC, read more here.