IBM BlueMix Launches with Subscription & Pay-as-you-go Pricing

Today IBM BlueMix, a cloud-based software development suite, was given its general release. In doing so, IBM recognizes two important trends. First, that leveraging the cloud for development makes as much sense as for sales enablement or marketing. Second, that the way enterprise software is priced is changing.

IBM’s pricing scheme for the new IBM BlueMix suite is a combination of pay-as-you-go and subscription pricing. This brings to developers using IBM tools the same financial advantages that exist for office productivity, CRM, HCM, and a host of other enterprise business applications. Subscriptions and pay-as-you-go, where each month a credit card is charged for a license, allows small organizations and teams to use software that typically would be too expensive to purchase outright. These are more flexible plans as well, allowing companies to adjust licenses quickly in order to accommodate team changes. This is especially advantageous for software development organizations where contractors make up a significant portion of the workforce. Even large companies will want to embrace this pricing model since it shifts CAPEX spending to OPEX and creates financial flexibility.

For big software companies such as IBM, this is clearly a departure. In fact, it represents a different way of thinking about pricing. Most enterprise software vendors still structure deals with upfront license purchases that require a big capital investment and a yearly maintenance fee. Cloud software has upended that model, especially over the past three years. The problem is not customer acceptance but recalcitrant sales organizations. It’s easy to understand why that might be; salespeople used to making money on megadeals aren’t yet comfortable with revenue that trickles in over time. Subscription and pay-as-you-go is a paradigm shift for enterprise salespeople. That IBM is adopting this model for an important new software products such as IBM BlueMix is a testimony to Big Blue’s evolution as a cloud software provider.

IBM BlueMix is a good product with which to introduce this type of pricing. As enterprise software vendors have switched to subscription pricing, they have been battered by the financial markets for perceived drops in revenue. The revenue from cloud products fits a different model than traditional pricing. Because of this, revenue shifts from on-premises to cloud have been painful for many large ISVs. With IBM BlueMix, financial analysts won’t have anything to compare to and the proper revenue model will be applied from the start.

This is a bold move for IBM. They have priced an important product in a new and disruptive fashion, one calculated to blunt the force of a new crop of competitors such as Cloud9 and CodeAnywhere. I’m hoping the IBM BlueMix team can hold off the inevitable pressure to conform to old models.

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