Why revenue-based pricing?This entry was posted in Gluu on .
Is an “open source business” an oxymoron?
At Gluu, our flagship product–the Gluu Server identity & access management (IAM) platform–is completely free open source software. That’s been our mission for the last decade, and that’s not going to change!
We don’t hold back features for paid customers. We don’t have a complicated licensing model that charges per user, per server, or based on the deployment environment (e.g. dev or prod).
Free can be a handy component for any business model.
Businesses of all types, in all industries, use the allure of free to attract new customers. Google is free–advertisers pay. Adobe Acrobat reader is free–people pay for the authoring tools.
For many open source software companies, the key question is how do you make money when you give away your product for free? Who pays?
Over Gluu’s nearly 10 year business history, it’s been a challenge to figure out how to monetize our open source software in a way that allows us to grow the company and the community.
Today, more then 80% of Gluu’s revenue is derived from the sale of “VIP support”–specifically, priority access to Gluu’s community support portal. Support is needed by many organizations because rolling your own identity & access management (IAM) service is hard. But even given that we sell support, how much should Gluu charge for support?
The stakes are high: getting the price right enables Gluu to keep up with the fast rate of innovation happening with federated identity, authentication and authorization online.
We’ve tinkered with several business models and offerings: managed services; feature-based support pricing; low pricing; high pricing; two pricing options; three pricing options; and more. It’s been a long journey!
Ultimately, we decided to offer our support services at a range of prices, starting at free.
Enter revenue-based pricing
One of our goals was to find a pricing schedule that allowed organizations to pay proportionate to their ability.
About 18 months ago we introduced a minimum revenue requirement for support plans. In plain terms this means the more money the customer organization makes, the more we expect them to pay for support.
Large organizations frequently place a higher demand on our support services, so we also offer more “features” as you climb the ladder. You can see more details on what we include in our support matrix.
We found that four categories of paid support worked well for us: basic, standard, premium, and enterprise. The revenue tiers are currently < $5M, < $50M, < $500M, and $500M+.
Enforcing revenue qualifications
So as most companies in the world are not public, you might be wondering how we enforce the maximum revenue requirement?
It’s pretty simple actually: we use D&B to look up the customer’s revenues. It’s not perfectly accurate 100% of the time. And the data always reflects the companies most recent full year revenue, which means the figure might not accurately represent the company’s revenues today.
But D&B data provides a quick and free base-line figure for determining which support plan the customer should be steered towards.
No longer do we have to explain to the enterprise customer why they really need enterprise support (and not basic support!). If they want guaranteed support, and they make more than $500M per year, they simply must purchase enterprise support.
This pricing strategy has significantly reduced the transactions costs for sales negotiations, and has resulted in more revenue from customers who can afford to pay it.
Pricing and business models are complicated. There’s no one-size-fits-all solution. But hopefully this blog offers some insight into Gluu’s revenue-based pricing model, which might be a worthwhile consideration for your business too.