SaaS Pricing for Callidus On-Premise Solution

In addition to the financial results Callidus Software’s Q1 2009 earnings call last week (transcript available here) had much other interesting information including mention of some new customers, new products, and employee headcount reduction. One item in particular that caught my attention was a comment by Senior Vice President, Finance and Operations, and Chief Financial Officer Ronald Fior:

When we get to that stage I mean, we’re going to seriously consider and we’ve been actually testing it out, going to more of a subscription-based term license kind of idea for the license side of this business for the on-premises side, because as I already said, there are some certain verticals that just seem to be pretty well stuck on the idea that they’re going to do an on-premises.

What Fior is discussing here is a software as a service (SaaS) like pricing model for the verticals and customers that insist on an on-premise solution.

Why do the various parties involved care? The software vendor Callidus, a public company, likes this pricing model because it provides a steadier more predictable revenue stream. Steady revenue streams make Wall Street happy. I’m convinced this is a primary reason for the proliferation of SaaS solutions; if your business is solid, it’s easier to get and keep a customer than it is to win new ones. Potential customers that for whatever reason dislike the SaaS deployment model (e.g. data security, legal) and must opt for an on-premise solution may actually prefer the SaaS like subscription pricing and now they can have it. This pricing model better distributes costs by reducing the traditional large up front license fees in lieu of continual subscription fees. Paying subscription fees over the life of the system will be new to those with traditional on-premise licensing but not entirely novel as these customers are used to continual payments (albeit perhaps at lower price points) in the form of maintenance agreement charges.

In fact, in many cases the total subscription cost could end up being only 10-25% more than the original maintenance-only reoccurring cost that accompanied the large upfront perpetual license fee. These subscriptions will undoubtedly be based on the number of payees (or seats) so a prospective client could start small at a lower cost and ramp up as they grow into the system. Implementation service companies like Canidium with red-blooded capitalist employees such as myself like that Callidus is providing this pricing option because it can only help more deals get done and when more deals get done, everyone wins.