Licensing metrics are designed to charge each customer what they’re willing to pay.
The Idea
Price elasticity measures how much demand changes when price changes. When demand is inelastic (you need it regardless), the seller has pricing power. When buyers can switch, delay, or do without, demand is elastic, and prices have to stay competitive.
Price discrimination means charging different customers different prices for essentially the same product, based on willingness to pay. The term is descriptive, not an insult; it’s standard economics, and software vendors are very good at it. The economist Arthur Pigou set out three forms in The Economics of Welfare, first published in 1920: charging each buyer their maximum (first degree), charging by quantity bought (second degree), and charging different groups different prices (third degree). Volume tiers are second degree; academic, nonprofit, and regional pricing are third degree.
Versioning extends the idea. In a 1998 Harvard Business Review article, economists Carl Shapiro and Hal Varian argued that when a product costs almost nothing to copy, sellers do better offering versions aimed at different buyers than setting a single price. Nearly every software edition lineup follows that advice.
In ITAM Terms
Every licensing metric (per user, per core, per device, per employee, per revenue band, per token) is a way to segment customers so heavier or higher-value users pay more. Editions, tiers, and “enterprise” features do the same. Understanding a vendor’s segmentation logic shows you where you’re overpaying and where you have leverage.
Where You’ll See It
- Software: Per-employee metrics charge for staff who never touch the product. Oracle’s Java SE Universal Subscription, introduced in January 2023, is priced this way. Per-core metrics turn a hardware refresh into a licensing event, and minimums add to the effect: Microsoft requires at least 16 core licenses for each Windows Server, however few cores the server has.
- Editions: The one feature you need lives only in the premium tier. That’s by design: the gap between editions persuades the buyers who value a feature most to pay for it.
- Cloud: Spot, on-demand, and committed pricing sort buyers by how much flexibility they need. Billing data that follows the FOCUS specification labels each charge with a Pricing Category (Standard, Committed, or Dynamic), which shows how much of your spend falls into each.
- AI: Per-seat assistants, per-token APIs, and outcome-based pricing are vendors experimenting in real time to find your willingness to pay. In customer service, several vendors now charge per resolved conversation rather than per agent seat. That ties price to value delivered, and it makes the definition of “resolved” a contract term worth reading closely.
Governance Takeaway
Your elasticity is your leverage. Demand is inelastic when you’re locked in with no alternatives; it becomes elastic when you have credible options, solid usage data, and time before renewal. Build all three. The FinOps Foundation’s practical scenarios for planning and procurement, developed with contributors from the ITAM community, including the ITAM Forum, show how FinOps and ITAM teams can combine usage forecasts and purchase volumes into a stronger negotiating position.
Try This
For your top five vendors, write down the metric you’re charged on and how well it tracks the value you get. Where the gap is widest, start renewal prep early.
