Consumption-based models are gaining popularity because they align costs more closely with actual value. While these models provide flexibility and scalability, they can introduce vendor revenue volatility. As a result, during economic slowdowns, consumption models might offer discounted pricing, while in times of recovery, they could see premiums due to higher demand and usage.
Investor behavior will directly influence vendor behavior. Many of the surface-level benefits of consumption-based licensing will undoubtedly be muted as vendors seek to impose constraints on customers' ability to "flex down" usage in times of budget stress or decreased demand.
Key implications for customers include:
1. Consumption pricing's growing influence and potential to further penetrate markets.
2. Its ability to affect how companies grow within their total addressable market.
3. The varying ways demand changes impact vendor revenue growth in consumption vs. subscription models.
4. Differences in incentive structures that could affect long-term margins and cash flow for the vendor community, in turn affecting various aspects and nuances of consumption-based model options available to customers.
