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Consumption pricing breaks bundling
Why bundles work
Microsoft built a phenomenal business on a product roughly 70 percent as good, bundled into an enterprise suite. Glean counts Microsoft Copilot among its most significant competitors, and the strategy works. Prospects often say they already have Copilot, and that comes up more often than hearing they have embraced one of the lab products.
How consumption changes it
Under consumption pricing, a business can get six tools, let users choose where they want to do their work, and pay for each unit of work wherever it happens. That removes the inherent advantage of the bundle.
Where bundles still win
The other side points to how large enterprises buy. They approve Microsoft as one vendor, and approving 15 vendors creates a vendor management problem that has nothing to do with price, with approvals and sign-offs at the largest companies in the world.
Companies that have been on the other side of Microsoft's push mostly name pricing as the killer, because it is hard to compete with free. There has still always been room for best of breed software, and customers who want a great search product or a horizontal AI platform pay for it on top of the bundle.
Why does bundling work in software?
Microsoft Office launched in 1989 as a package of Word, Excel, and PowerPoint priced below the sum of the separate programs. Economists Yannis Bakos and Erik Brynjolfsson showed in 1999 that bundling many information goods can raise a seller's profit, because the bundle makes the buyers' total willingness to pay more predictable. Customers also value having one purchase, one login, and one contract. These advantages held even when a single app in the bundle was not the best available.
Why is consumption pricing spreading in software?
Amazon Web Services helped normalize it when it launched S3 in 2006, charging by the gigabyte stored instead of a flat fee. AI cost scales with use, since every request consumes compute. Seat-based pricing, which charges per person, can leave vendors losing money on heavy users. Charging by the unit of work keeps price tied to cost.
Why do big companies limit how many vendors they use?
Each new vendor usually has to pass a security review, a legal review, and a procurement process before it is approved. Contracts, invoices, and access controls then have to be tracked for as long as the relationship lasts. Large companies often have teams devoted to vendor management. Every added vendor adds to the load on those teams.
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