Business Applications, Growth, and Disruptive Pricing

hcm software pricing modelsToday we’re going to look at pricing, growth, and software adoption, because as business leaders we’re on the receiving end of many of these services and it helps to understand what’s going on in the marketplace.

Last week I was reading about Slack, a business application that is virtually exploding in growth. Here’s a snippet:

After one year, Slack had already hit 500,000 users, 160,000 paid accounts, and a mind-boggling $12 million in annual recurring revenue (ARR). And its growth is only accelerating. Daily active users are increasing 5-7% each week, and the company is adding $1 million in ARR every 11 days.

By all accounts, that’s substantial. But one other quote in the article really made me stop and think.

Slack only gets paid if people actually use the product.

For instance, I can set up twenty users, but if only five of them regularly use the product, then I’m not billed for the other fifteen non-users. That is a powerful transition from the traditional pricing models based on “seats,” and it’s one that I’m intrigued to see transition into the HCM technology marketplace over time.

An Example of a Disruptive HCM Player

Want another example of disruptive pricing that’s a little closer to home? How about Zenefits?

At 30 percent month over month revenue growth (leading to projected 1,300 percent annual growth projections), Zenefits is truly in a league of its own. In fact, those are more akin to consumer Web and mobile growth figures than anything the SaaS category has ever seen. [via Pando]

For those unfamiliar, Zenefits is a SaaS HR platform for managing employee benefits targeting the SMB space. The twist is that the company offers the platform for free with revenue being generated from its broker services with healthcare and benefit providers. How’s that working out for them? They have been called the “fastest growing SaaS business in history.”

Several years back SmartRecruiters used a similar revenue generation model but has since removed many of the free features, making it a paid app for all but the smallest of companies. They worked with job boards on a revenue share model and offered their applicant tracking system for free as a way to drive adoption.

So, What’s In It for Me?

This is fun to discuss, but what does this mean for your organization overall? I see two ways to position the concept in a thoughtful exercise.

First, what if you only paid for your HR, recruiting, or learning software at the rate you actually use it? Instead of paying for licenses or by employee headcount, you only pay for the number of people who actually use the product to get the job done. Think about it — we buy these tools to make our workplaces more efficient, but if only half of our employees adopt (and our data says about three in ten companies have less than 50% adoption of their primary talent management system) then we’re not getting anywhere close to the results promised by the vendor during the sales process. Sobering, right?

Second, what if we turn this lens on ourselves as leaders? What if we were only compensated based on the systems our employees use? While implementing an HCM system can be a massive undertaking, it’s easy to lose focus after the initial roll out. Instead of merely taking ownership of the system, what if we as HR leaders were compensated based on the satisfaction and usage by our internal customers?

I had a conversation recently with some business leaders about how some companies will roll out new software purely to make the job easier for HR, even when it leads to a neutral or negative impact for the overall employee population. This sort of system would eliminate those types of decisions.

I know this seems a bit “meta” but it’s a good exercise to help us understand why we make the decisions we do. What are your thoughts on these new pricing models? Do you think we’ll see a Slack model come to the HCM marketplace?

Ben Eubanks, Associate HCM Analyst, Brandon Hall Group

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