In the recent State of the Union, President Biden lamented how fees have become so common. "I know how unfair it feels when a company overcharges you and gets away with it," he said. There seems to be bi-partisan support for eliminating resort fees, a common ruse designed to charge for “free” internet at hotels.
Add-on fees are also becoming common in software services. There have been several creative attempts to increase recurring revenue through fees. First, Twitter began charging for its authentication service, and now it’s decided to monetize two-factor SMS authentication.
Facebook must have thought that was a good idea, so created its own upgrade called Meta Verified. In communications, Microsoft introduced Teams Premium, a new feature pack, as an optional add-on that joins several other options including Teams Advanced Communications and the E5 license.
To some degree, tiered pricing and add-ons in UCaaS are perfectly reasonable. Consider the upsell model in freemium plans from providers such as Zoom and Slack. Freemium plans reduce barriers to trials. Paid options add additional features and support. It’s a great model as enterprises can easily justify services that have already proven value.
Traditional paid plans, often called "business" or "premium" plans, are the UCaaS norm. Here, organizations typically pay a flat rate per user per month, and if the organization wants more features, they'll move up to a higher-priced plan.
Until recently, the most advanced plan (sometimes called “enterprise”) was the top UCaaS tier. These more advanced plans include things like analytics, events, and webinars. This should not be confused with separate, specialized applications such as CCaaS.
Tiering is a pretty clear and easy-to-understand model, but creates an innovation paradox: how do you fund innovation when it’s difficult to increase monthly subscription rates? It's not exactly popular to keep increasing rates.
One model is usage-based pricing. Here the provider is incented to create compelling features that results with increased usage…and revenue. Usage-based pricing aligns the provider with the customer's interests. It does have its drawbacks: not all customers like the unpredictable costs of usage-based pricing, and it's also complex for the provider to implement as it requires advanced metering and billing.
Another approach to increasing revenue is by adding advanced feature packs for an additional fee. The new Microsoft Teams Premium is an example of this — a new collection of features that may appeal to specific users of Microsoft Teams that require better branding, improved meeting security features, better webinars, virtual meetings, and additional AI-powered capabilities such as auto generated chapters in meeting recordings.
We are going to need a bigger cart because add-ons are "in." Teams Premium joins popular add-ons such as the Zoom PowerPack or Cisco’s Real-Time Translation. As UCaaS continues to expand in features and capabilities, it's also becoming more modular.
UCaaS is also expanding to different types of users. For example, Microsoft designed F1 licensing to give frontline workers a subset of communication, collaboration, and productivity tools, including Teams and Viva Engage (formerly Yammer). Another new addition is Microsoft Teams Mobile which integrates Teams with cellular services.
I am a fan of the flat-rate, all-inclusive plans, but communications subscriptions are trending to be more modular, expensive, and complicated. To sort through all of these options, enterprises
should create core profiles or personas for major user types. Each persona or department will likely have a different set of requirements and required licenses. For example, the marketing persona may need webinar and event features.
A persona-based approach eliminates the need to question/review each option for each user. Also, it will reduce overspending on unnecessary upgrades. I cringe to think of customers splurging on Teams Premium plan enterprise-wide. But then, it wouldn't surprise me either. Microsoft makes its bundles very appealing.
During uncertain economic times, customers want to do more with less. As customers evaluate their spending, add-ons can be attractive as long as they align to their business needs.
To some degree, add-on, modular pricing is attractive as it allows the customer to pay for what they want. But it’s also a balancing act. Modular pricing can turn into nickel and diming, and before you know it, the President of the United States is talking about your fees in the State of the Union Address (United Airlines responds). Providers need to be careful to balance the need for innovation with sustainable licensing practices.
Dave Michels is a contributing editor and analyst at TalkingPointz.