Worth-based contracts: A Pc Weekly Downtime Add podcast

IT decision-makers and other people in IT procurement have seen varied kinds of software program licensing evolve. On-premise software program licensing, usually charged per person or per processor, has moved to a subscription-based licensing mannequin with the expansion of Software program as a Service (SaaS). However as Prem Ananthakrishnan, world software program apply lead at Accenture notes, there’s a new mannequin that’s now rising, primarily based on the thought of measuring the worth that the software program or service supplies.

Trying on the evolution of software program licensing, he says: “The perpetual licensing mannequin, the place you’ll pay a one time payment for the software program and personal that model ceaselessly, has been quickly declining. The dominant mannequin at the moment is the place the shopper pays a recurring payment. This might be per person or per tier for a given time period.”

This mannequin is predictable for software program companies, who, he says, are in a position to extract worth on a hard and fast time period foundation.

Whereas there was some resistance from IT patrons over the transfer from shopping for software program as capital expenditure to an OpEx (operational expenditure) mannequin, he says, it’s serving to them keep away from shopping for shelfware or being locked in. “In addition they recognise that they will pay, see worth after which proceed to speculate incrementally in software program,” he provides.

One other mannequin that has been gaining traction over the past decade is predicated on utilization, the place an IT purchaser purchases consumption credit. “Consider the cellular phone sort plans popularised by the hyperscale cloud suppliers,” Ananthakrishnan says.

Accenture is now seeing the emergence of outcome-based or value-based pricing fashions as Ananthakrishnan explains: “The thought right here is that you just pay for the precise outcomes or enterprise impression that the software program creates and never only for the entry.”

“When Gen AI got here to the scene with ChatGPT in 2022, folks shortly realised that AI makes software program dynamic.” Not like conventional software program the place the worth sits in dashboards and stories Ananthakrishnan says agentic AI and AI software program is wise: “It thinks, it acts and it causes.”

It additionally consumes compute sources in actual time and is unpredictable. As Ananthakrishnan factors out,  software program suppliers discover it troublesome making an attempt to use a static software program licence to cost one thing that’s dynamic.

From an IT purchaser perspective, Ananthakrishnan says the large shift is a elementary change from understanding that software program can’t simply be bought as a device. “Take into consideration software program as a collaborator that’s driving an final result for the enterprise,” he says.

For now, IT patrons can have seen the usage of tokens as a method of measuring AI’s worth. In impact, this provides a type of utilization -based licensing that approximates worth primarily based on the variety of tokens – or phrases – a generative AI engine handles. Ananthakrishnan says: “The tokenisation or utilizing computing credit or GPU credit, are all simply proxies for worth.”

Accoridng to Ananthakrishnan, the rationale most AI suppliers have gravitated in the direction of token-based pricing is as a result of it provides a easy method for purchasers to grasp worth. He says: “Actually understanding worth factors and attributing the worth generated by software program to a selected [value metric] is a really, very arduous drawback to resolve.”

However, for Ananthakrishnan, that is the place the software program market is heading.