Wednesday, June 04, 2008

User-Based Pricing

One of the problems with user-based pricing for services is that it generally relies on an inflexible notion of the user.

In some cases, user-based pricing is fixed to a particular device (such as a laptop) or a physical channel (such as a telephone line). A user who wishes to switch device or channel must incur some inconvenience or cost. Conversely, two or more people using the same device or channel can use the service for the price of one.

Alternatively, user-based pricing can be controlled by login and password. (Sharing your login is a criminal offence, says Phil Wainewright, but of course that doesn't stop people doing it.) This is why single sign-on is so popular with service providers - because it inhibits sharing. (You might be willing to let me borrow the login for an online research library, but not if the same login gave me access to your bank account.)

But instead of trying to protect revenue by suppressing sharing, service providers should be thinking about better ways of charging in the first place. Office workers use paid-for services (Phil's examples include Dun & Bradstreet and WebEx) in order to perform some business process. If an office were organized as a traditional production line (sometimes called Fordism), then there might be a single clerk doing nothing but Dun & Bradstreet service calls. But of course most modern offices are organized in a more fluid way, which means that a single process step is passed around between colleagues. The notion of "user" is associated with a role within the business process, rather than with a named person; this makes perfect sense to the consuming organization, but of course the service provider will regard this as cheating.

If you are a service provider, you need to understand the business processes (within your customers) that trigger consumption of your services, and design a flexible charging scheme that is aligned to the value of these services in that context. Then your customers should be happy to pay a fair price for these services, and won't have the same incentive (or opportunity) to cheat.

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