Next Phase of Web ServicesBy Lawrence Walsh | Posted 2008-02-14 Email Print
Could Google and Microsoft’s online advertising model change the pricing of all Web services?
The next phase in the Web services evolution, though, is migrating from the heavy subscription-based services to the pay-as-you-go model. As Dancizger says, there is a growing demand for accountability within the enterprise, and that often means justifying how much is being spent where. Switching to on-demand pricing, he says, will give enterprises a better sense of what they’re true application and infrastructure utilization rates are, where they need more and less resources, and more accurate budgeting. “This trend is forcing the service departments within the organization and service providers to put the processes in place to align services with the business,” he says.
It’s a wonderful vision that could save enterprises millions of dollars potentially, but not one that anyone is racing to implement. Digital Fuel, like similar applications, are more reporting tools that provide deeper and broader utilization intelligence under a single pane of glass. While it’s possible to use Digital Fuel to measure customer utilization and charge by the sip rather than drinking from a firehouse, James Jimenez says the market just isn’t there yet.
“It depends a lot on the maturity of the customer. The customer may have a built in mechanism to allocate IT cost and may not be mature and doesn’t integrate with anything external,” says Jimenez, director of business intelligence at Siemens IT Solutions and Services.
Siemens uses Digital Fuel internally and externally for service-level agreement compliance reporting. Jimenez says the tool works very well for measuring multiple, complex metrics that provide the service provider and its customers with the intelligence they need to make strategic IT decisions. Transitioning to a pay-as-you-go model, he says, is the next step.
“We haven’t deployed it in that matter, but it’s certainly been discussed,” he says.
Micropayments and pay-as-you-go service pricing has the potential to save enterprises money, but they too could be opponents to changing the pricing structure. The current subscription-based, tiered pricing gives enterprises consistent pricing by which to budget and allocate funding, says Burton Group analyst Craig Roth.
“Every company has a budget planning season, and you go through and budget what you expect is a fix service cost,” he says. “It helps them by knowing they have an exact figure to work with.”
And don’t expect the Web services companies to willingly start offering variable pricing. The value of offering Web-based services is the sale of regular, fixed subscriptions that create a recurring and predictable revenue stream. Roth said Wall Street will hammer any public company that can’t accurately forecast its revenues, as happened with Google last week when its quarterly performance fell below expectations.
Numerous technology, business thinking and market obstacles stand in the way of a broad-based pay-as-you-go service models taking hold, but Dancziger believes the day will come when businesses will force IT and service providers to adopt a more flexible approach to pricing services based purely on real-time utilization.
“The businesses units are already coming to IT and saying that if they don’t put in place processes and products that are aligned to the business, they’ll go to someone more willing to align to the business and they’ll win the business,” says Dancziger.