May 2022
Author: Bryan Belanger
At XaaS Pricing we talk a lot about best practices around how to conduct pricing strategy research and competitive price benchmarking. As part of these posts, we’ve gone into detail on the types of research methodologies, tactics and sources to use in building a pricing strategy. One area where we’ve barely scratched the surface, though, is around the enabling solutions (technologies and services) that power the development and implementation of “as a Service” pricing strategies.
This topic is near and dear to us for many reasons. It certainly is relevant because XaaS Pricing fits into that solution stack in a few different ways. We’re a player in the game. But it’s also interesting to us because of the parallel evolutions happening in other elements of the SaaS stack. For example, the martech (marketing technology) stack for SaaS companies is mushrooming, and there is an entire category of product-led growth (PLG) CRMs and related solutions that is emerging. Pricing is following a similar trajectory and is highly connected to the PLG-driven evolutions that are occurring but seems to be flying under the radar.
So what exactly is the pricing strategy and execution stack? The best and most comprehensive taxonomy I’ve seen for this ecosystem comes from IDC’s (International Data Corporation) IDC Market Glance: Monetization Ecosystem Software, which can be viewed here. The link is a bit dated but provides a solid overall holistic framework of the software solution categories that define the pricing ecosystem.
There are many surrounding sub-ecosystems that IDC incorporates in this view, including subscription management, payments, revenue recognition and usage intelligence.
For our purposes, we’re mostly focused on the categories that are specifically related to pricing. In IDC’s taxonomy nomenclature, this includes price optimization, entitlement and enforcement, and configure-price-quote (CPQ) and guided selling.
There are a few elements we’d add to IDC’s taxonomy and a few ways we’d adjust this viewpoint to highlight specializations and make it specific to technology sector “as a Service” companies.
First, we’d note that each of these categories can and does contain software-only, services-only and hybrid providers. They include all sizes and types of players — from startup SaaS offerings to established enterprise CRM providers — as well as major global consultancies and one-person boutique SaaS pricing advisors.
From our lens, the high-level categories comprising the “pricing strategy and execution stack” for “as a Service” vendors include:
The above is a general and representative overall framework of the key pricing motions that “as a Service” companies need to take to manage and execute their pricing strategies. The scope and scale of the pricing function as well as the enabling tools and services that underpin it can vary widely by vendor maturity and selling motions. The end-to-end structure can be simpler in some cases and significantly more complex in others, with many sophisticated tools both for pricing directly as well as for the larger monetization stack that IDC outlines.
Within that overarching framework there has been an emergence of new early-stage software players that are aiming to disrupt, simplify and optimize the pricing strategy and execution stack for “as a Service” companies. Many of these vendors are competing in the established pricing categories outlined above but are aiming to simplify complex, manual methods and adapt those methods specifically for “as a Service” businesses.
Here is a short list of some of the vendors we see emerging and disrupting the pricing stack for “as a Service” businesses:
It’s interesting to note that most of the innovation occurring in the space currently focuses on pricing plan management and analytics. These are great concepts that will make executing pricing strategy and experimenting with pricing much easier for most companies, especially early-stage companies with smaller budgets to spend on pricing and few or no dedicated resources.
However, we believe that still leaves an industry gap in the realm of pricing strategy, research and benchmarking. These are areas that have been traditionally served by high-cost professional services and/or productized services solutions, making them inaccessible to founders and early-stage companies. Having tools for pricing plan management and analytics is great, but those tools are ultimately only as good as what you input into them. If your strategy is misaligned to your market and your customers, being able to manage plans with APIs won’t do you a lot of good. That’s a problem XaaS Pricing is focused on solving, and we expect more innovation in that area in the near future.
SaaS sprawl is very real and scales quickly for companies of all sizes. This article does a good job of summarizing the total footprint of SaaS applications for the average business. The short version: Companies accumulate a lot (hundreds) of SaaS subscriptions quickly as they grow.
The pricing category runs the risk of falling into the same sprawl cycle highlighted in this article that has consumed the sales and marketing SaaS category broadly. Companies that are seeking to get smarter and more agile about enabling their pricing function may find themselves quickly adopting five or 10 solutions in that pursuit and then having to think about integrating and managing that suite.
The way out of this box is through integration and partnerships. All “as a Service” companies need processes and tools to support their pricing strategy. The scope of the need and the appetite to spend varies widely by maturity. Early-stage companies don’t need the full suite of solutions or the complexity that most solutions offer. They also can’t afford to pay six figures (or much more) for consultancies and/or productized services to help them with aspects of their pricing strategy and/or execution. They are most likely to address their pricing requirements through DIY approaches and lightweight tools. As the pricing strategy and execution stack and companies we’ve outlined in this blog evolve, look for partnerships and/or acquisitions that seek to vertically integrate the capabilities we’ve discussed. These activities will result in the development of an end-to-end “as a Service” pricing platform (think HubSpot for pricing) that is purpose-built to help “as a Service” companies of all sizes optimize their pricing strategies.
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The state of product-led growth pricing strategies