ReadWriteWeb recently published a post titled “Reversing the Enterprise 2.0 Pricing Model“. It argues that the Enterprise 2.0 market is suffering due to its deep discounting of per user pricing contracts with large firms. To illustrate this point, a graph shows the cost per user declining down to a flat line against an exponential curve indicating increased business value per user as adoption takes hold.

I agree with the sentiment. Per user pricing is broken. But the suggested solution to reverse the model and actually charge more per user as the number of users in a contract increases is contrary to the whole drive towards widespread user adoption in Enterprise 2.0 applications.

Per user pricing that needs steep discounting is a bad idea, but not as bad an idea as charging customers more for being better customers.

In Enterprise 2.0 applications, per user pricing is detrimental to adoption. Enterprise 2.0 applications work best when everyone in an organization is on board - that’s the whole point. So why set pricing directly against that goal?

Another reason per-user pricing doesn’t work is that it imagines a set cost per user, as if all users get the same value out of the software and cost the same amount to service. This cost per user is imaginary and explains why deep discounts occur. Take Twitter for example… there are millions of “users”, but how many of those really make significant use of the platform? A company will want to make a service available to everyone, but because users consume resources so differently, guessing at a cost per user is an exercise in futility. And what customer wants to pay for individual users who may or may not end up using the software regularly?

EditMe’s pricing is based on EditMe’s cost of delivery. Fees are based on the data center resources customers consume (on a simplified scale, of course). Though there is a volume discount, it ends at a certain point guaranteeing a minimum profit margin on the service that continues to rise with very large accounts due to efficiencies realized by these accounts.

Cost-based pricing allows customers to scale their use of the product at their own pace, and only pay for what they use. In my view, this is a significant competitive advantage as most of my competitors have steep per-user fees built in. In the era of cloud computing and adoption-oriented applications, it doesn’t make sense to price SaaS any other way.