The new offers and business models : from pay-as-you-go to the freemium model

 In Articles

The cloud enables start-ups to concentrate on the front end application without having too much to invest on the back end. The most successful ones have coped with their striking success and growth thanks to the cloud services. Otherwise they should have invested billions in servers and infrastructures and/or lower their level of services, which could have sunk them. The Cloud has renewed the creativity of the start-ups in terms of services but also in terms of Business model, which are no longer limited by IT.

The main revolution lies on the low investment required to develop a cloud based application and also on the retribution scheme: Pay-as you-go, subscription or even free!

Here is one example: at the very beginning of the vehicle fleet management by GPS (for Parcel services, Technicians, Health services, etc) two start-up were battling for the market. The first one was offering to purchase the software with a PC along with embarked device thoughtfully financed with a lease. The other one offered a subscription to a web site enabling to manage the fleet. At first sight, both model seemed very similar: The client had to pay a monthly fee (lease pay back or subscription) for a service. Actually business model could be any different since service greatly differed: On the first offer, the service was linked to one single PC, while in the other offer, the service could be accessed from everywhere with a single password. Moreover, updates were automatically provided while the first offer required buying the new version (possibly with a rebate…).

The latter model is skyrocketing: On-line mail services, VOD, Online application (Picasa, Photoshop, Social network, etc.) and even music (Deezer, Spotify, Qobuz, etc…).
The content as well as the software becomes virtual. Data and applications become available everywhere. Customisation parameters are stored on the Web enabling to find your own settings for your favourite application from every connected device. No more safety saves, no more reinstallation, no more update to install, no data transfer or duplications.
With the seamless online update and synchronisation, there are no issues on format or incompatible version within a common application.
Usage is more flexible; mutualisation provides an almost infinite capacity to meet immediate needs. The system does not require any upfront investment, and the pay-as-you-go scheme allows paying only for the actual services used. This allows more projects to be launched as the initial investment is lower and as the critical size to become profitable decreases, start-ups have a better chance to survive in the short term.
At last, the deployment and installation on a very large scale (for instance within a large company) is easy, quick and costless (not counting possible training). Indeed, there is no installation whatsoever.

This enables to invent new payment means: the relation between PaaS and SaaS providers (Owner of the application) is generally based on a “pay-as-you-go” scheme. Then the SaaS provider can bill its end user on the same basis or on a monthly flat fee. Other resources such as advertising or data mining can complete or even replace client subscription. This is where Freemium (as a combination of free and premium) starts: A SaaS provides a free service supported with ads, but offers some premium service for a paid subscription. The Free service is of course a very good appeal product for the premium offer. Major internet players have adopted this pattern: Megavideo, Second Life, Spotify, Rapidshare, Evernote, etc.

This also applies to the large companies market with the externalisation of server in the farms to run the client’s own applications (PaaS) or third party ones (SaaS) such as Google Pro, Salesforce.com, or even SAP. This could also be very specific application linked to an activity: (Fleet management, insurance modelling, financial computation, etc.). Tough the core tasks remain (Process, Settings Data, Formatting, change management), projects are easier to implement.

All the perspectives of the Cloud Computing have not been explored yet. The absence of any informal norms deters institutional companies to join the battle and adapt their operations to the Cloud architecture. Nevertheless, it appears as unavoidable: according to Gartner, traffic on cloud based application will grow by 50% for the next five years.

If this “all Internet” settles issues and give birth to a wide range of possibilities, a major barrier to those services remains: connection availability and connection speed.
It is on holidays that you want to share pictures, during a trip to New-York or London, in the countryside or on ski holidays… Today, mobile data is 1 000 times more expensive abroad (10 000 € a Go) than in France and the availability of 3G or wifi networks is more than uncertain: today it is far less expensive to print and send your pictures via post than send them by email at the Mo cost abroad… Apple was well aware of that, introducing a revolution maybe even stronger in the contracts than in its products: first, unlimited Internet associated to the iPhone; now, data-only contracts at reasonable price prepaid on their App Store – whatever the country or the operator is – associated with the iPad.
Connection speed, especially for upload, is the other challenge: with today usage, it is generally enough. But, while broadband goes faster, new technologies push usage and needs become more important: HD movies, megapixels camera, HD audio, etc. If you need to upload 1 Go of photos, it still takes hours, even with the best connection. As memory cards of 64 Go are available, this is a real issue.