This video discusses the evolution of software pricing models: from on-premise perpetual licenses, to SaaS subscriptions, to a rising third era—consumption-based models pioneered by cloud providers. Consumption-based pricing ties revenue recognition to actual customer usage rather than committed subscriptions, aligning billing with real usage.
There's a lot of buzz in the industry right now about consumption based models. There's, you know, we think of it as maybe the third era of software pricing and licensing and billing models. If the first was kind of the on premise software license and support perpetual licenses, the second, with the advent of SaaS, was subscription models. Now, in the last few years, and really pioneered by the cloud service providers, consumption models have been gaining a lot of traction. But first, let's talk a little bit about what it is. Well, a consumption based model, it really allows you to recognize customer revenue based on actual usage versus the subscription commit versus a committed contract and kind of the promise of usage. And so a lot of people are big fans of the consumption model because it brings your revenue recognition much closer to actual customer usage.
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