Visiting software pricing models

While doing yard work today, I was listening to a Gartner podcast discussing software licensing. I must say that it put software vendors in a rather capitalistic light. Note that my quote is paraphrased (from memory), not a literal quote. â€Software vendors do not change pricing models to lose money€. The two pricing models mentioned were subscription models (software subscriptions) and dual-core pricing, noting that some customers were requesting utility "pay for what you use" pricing. Note to Gartner, dual-core is about to become passe. Customers are going to have to deal with “multi-core” pricing models from software vendors if things don't change.

Gartner mentioned no vendors, and therefore did not mention that Sun is attacking pricing models head on. With our JES pricing model, customers know what they are getting. Not only today, but going forward. $100 per employee per year with a up to a 5% price increase per year. No surprises. That's a software subscription that is predictable. And you get most of the software on the Sun truck. Plus our desire is to make all of our software open source, and with that will come transparency. Again, no surprises.

The podcast also discussed the impact of virtualization on pricing models. While dual-core is passe, so is “core” in general. How much should a software vendor charge for 1/10th of a core? The concept of “per-core” pricing has to go. It is becoming irrelevant, so 20th century.

Customers are starting to take notice. I sat in a meeting last week where JES licensing came up. Customers are taking notice of the JES model. Don't fall for vendors giving you a 3 year fixed-price “all software on the truck” deal to compete with our JES pricing model. Get in writing what happens years 4+.

I'd be interested in hearing about some alternative software licensing models out there. We all know about the “free-software-pay-for-support” pricing model. I'm sure customers would love to pay 30%-of-list-price-support for that :) Any ideas?

Comments:

John, 'Utility' pricing, included as an available service, works well for 'home' IT offerings. This would suggest that it will be the preferred 'business' pricing model going forward. My 'project' has been specifically engineeered for such.

Posted by William R. Walling on November 06, 2005 at 02:10 AM PST #

Hi John,

I'm a pricing consultant working in the Netherlands, and while I haven't dabbled with software pricing, but have worked as a programmer (on Unix and Windows), I did have an experience that I'd like to tell you about.

Normally, most software vendors assume that the useful lifetime of their software is around 3 years, seen that most people also upgrade their hardware in 5 years, and if it's leased 3 years.

I visited a client who was running Windows 2000 on some machines and Windows NT on some others. Instinctively, I told her to upgrade - to a non windows platform of course. But on the long ride home, I got to thinking.

In a lot of places, especially India, the price of a license of a windows operating system of the "previous generation" which is still supported falls drastically. So when the Windows 2000 system costed x amount, the cost of a windows NT is x/5! Given that you can find a lot of people who can administer such a system well, their cost falls as well. So the older operating system becomes incredibly financially attractive - for people who use it for normal office type applications AT WORK. (Most folks who use it at home in India pirate the latest version.. no question of that.)

The second thing was - if you compared feature to feature on a pretty high level - Wordprocessing on a previous platform versus Wordprocessing on a new platform, there isn't that much value addition for a basic user. And given that economic advantage of older platforms, the cost to consumer of a new platform actually increases.

So here's my notion - Make newer releases of platform software cheaper (for some customer segments) than the original ones. Stick the higher value add-ons in a separate bundle, which can be purchased if someone buys utility computing or support contracts or so.

High value applications should never be introduced in a suite, since a suite automatically becomes a platform. They should be on the utility computing / Application service provider model. Once you find that the rate of subscriber growth on that service has flattened, and has stayed there for awhile, move the service to the suite.

It's an early Wednesday morning here, and perhaps what I've just put here could already be "out there", or I may have made some glaring mistakes here. So please give me some feedback on this post of mine.

Have a great day. And keep up the good work at Sun.

Warm regards,

Arun

Posted by Arun Sadhashivan on November 09, 2005 at 03:37 PM PST #

Post a Comment:
  • HTML Syntax: NOT allowed
About

John Clingan

Search

Archives
« April 2014
SunMonTueWedThuFriSat
  
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
   
       
Today