Is Slack Rewriting SaaS Pricing Rules?

Cell phone tower

Steven Forth, a fellow pricing expert that I enjoy reading, shared and interpreted an awesome story about a new pricing strategy for Saas in a blog titled Slack Is Rewriting The Rulebook on Saas Pricing.  The key point of the story is that Steven was elated when he received an email from Slack saying Steven’s company didn’t use all that they purchased so there would be a credit provided to them.  Wow.

First, imagine the elation whenever any company surprises you by giving you money you didn’t expect.  That is incredible.

In Steven’s article, he went on to describe the history of software pricing models.  A very good article you should read.  The only minor disagreement I have with his article is he stated that he believes this pricing tactic is a transition to pricing based on value delivered.  In other words, this is the future of SaaS pricing.

I’ve made many wrong predictions in this blog, and this may be another, but here is my prediction for the success of this new pricing tactic. It depends. In some markets this will drive competitiveness.  In others, it is simply giving money back to your customer at the cost of your profits.

Think about cell phones.  AT&T used to offer rollover minutes.  If you didn’t use them they stayed on your account.  That’s very similar to Slack’s pricing tactic, only pay for what you use.  AT&T advertised this a lot as a differentiator, as more value to their customers.  And yet, the other carriers didn’t follow suit. They didn’t see it as a big enough differentiator to mimic. AT&T eventually cancelled the program.

However, it’s very likely that markets with low switching costs and minimal differentiation will gravitate to pricing tactics like this.  The cell phone industry does not have low switching costs, which may be why this tactic didn’t work for AT&T.

The lesson for you, if you offer SaaS products, is be aware.  This may become a competitive sledgehammer in your industry.  Maybe you should be the one to wield it first.

 

Photo by Gary Lerude