The future of software is Usage-Based Pricing

We have passed the time where software is just bought off the shop floor and you simply install it on your local machine or servers to get access to a fixed amount of functionalities and features. Software has evolved from being just a product to becoming a full fledged service. The service also evolved from subscription pricing models into more adaptive usage-pricing models (UBP).

What does that mean?

Today software companies are not just simple suppliers anymore, but are full-on partners and essential in the daily operations of the businesses they serve.  This also means that businesses don't just pay for a product anymore but mainly for consistent access to the engineering teams, product teams and the constant flow of innovation that these teams deliver and build on daily basis. This is why building exceptional teams is the best indicator of future success.

As a result of these partnerships, the strongest softwares companies take a skin-in-the-game approach with the companies they partner with by adopting UBP models. They are exposed to the upside they contribute as well as the downside. They are paid more when they deliver excellent value but also paid less when their clients are not performing as planned or expected. The incentive for companies with this pricing structure is therefore not to sell more 'units', but to deliver features that allow their clients to grow and achieve their own aims faster.

According to a state of Usage-Based Pricing report performed by OpenView partners, which includes data from nearly 600 participants, 45% of SaaS companies had a UBP model in 2021. This figure is up significantly compared to 34% in 2020 and 30% in 2019.

While UBP models have become the norm in infrastructure (e.g.: AWS, Azure & GCP), they're now found in middleware and software applications as well.

What makes the UBP model great is that it aligns all internal teams towards the customer success of their clients by creating real and fundamental day-to-day alignment.

This wave is not slowing down in 2022.  61% of the companies surveyed expect to test or introduce this model in the future. If these trends continue, UBP will become the norm, not the exception, as early as 2022.

The mortgage industry less familiar with this model. Lenders we have spoken to expect license fees, maintenance fees and upgrade fees.  Whilst this gives lenders a more predictable cost estimate for the duration of a contract, it disincentivizes true innovation, partnership and long-term alignment. It is in software providers' interests to delay the delivery of new features, or hide them behind paywalls to extract continued upgrade fees. Lenders end up paying the price down the line by being forced into big bang transformation projects to catch-up with technological change.

Mast is partnering with lenders by building cloud-native mortgage origination at the intersection of middleware and software applications. Mast is committed to give commercial and product flexibility to our customers to align ourselves and share resulting success and scale.