
How to price enterprise software - arihelgason
http://onstartups.com/tabid/3339/bid/174/Startup-Tips-for-Enterprise-Software-Pricing.aspx
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edw519
I agree with OP's assessment of the enterprise world; I do not come to the
same conclusions.

I have been on both sides of the enterprise software sale many times and have
concluded that a) it always sucks and b) it's rarely in _anyone's_ best
interest.

So instead of examining the current model and making suggestions for
accomodating or improving it, I prefer to suggest an alternative.

I believe the best way to crack the enterprise software market is the same way
to eat an elephant: one bite at a time through the soft underbelly...

Find a critical business function being done in Excel and provide an
alternative web app.

Find a "business within a business" and automate it with modern technology.
(Examples are small independent business units, warehouses, job shops, sample
shops, _anything_ a user has set up that _can_ be autonomous.)

Provide a modern satelite system to augment and integrate with an existing
enterprise monster. (A separate module for one function like payroll or fixed
assets, special processes for marketing, engineering, manufacturing, etc.) The
possibilities are endless. _Somebody_ is not getting what they need out of
SAP, Oracle, or whatever.

Provide a separate business unit with everything they need. This may be
cheaper than the customer adding more licenses to their ERP system.

The key to this approach is staying under corporate IT's radar. The way to do
that is by keeping your prices below your customer's boss's threshold.

How do I know this can work? Because it has, many times. I have implemented
dozens of apps in enterprises that they thought they could never have because
of the existing software and sales model.

And I remember history. At one time, IT departments were very threatened by
PC's. They challenged their ivory tower with a mainframe and dumb terminals.
So users just bought their own PCs from their expense budgets and forced IT's
hand.

Lightning can strike twice. Users are once again tired of waiting 18 months
for a fix and are ripe for a custom 37signals type of solution. Let the app
rush begin.

~~~
thomaspaine
I had an experience like this in college. A friend of mine worked as an
administrative assistant and his job was to take a PDF that was several
hundred pages long, and go through page by page and save it into several
hundred individual pdfs based on one or two variables.

I wrote a python script to do this for him, wrapped a gui around it, and
compiled it into an exe (this is how I taught myself python by the way). We
sold it for $200 a piece to a couple of the departments at our school. When we
went to the oracle rep to talk to her about automatically integrating this
into the system's workflow, she told us that this feature already existed.
Maybe it did, but apparently nobody knew about it or how to use it. We
probably could have pursued it further, but then I graduated and moved across
the country.

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com
Much of this resonates with my experience in big organisations - but generally
bad memories surface, not good ones.

Enterprise software is like toilet paper in centrally-planned economies such
as the old eastern bloc: substandard, rationed, barely functional, ugly and
grey, and sometimes leaves you bleeding from the related orifice.

I'd be interested in hearing about transformational enterprise software
marketing, where all these pricing and sales practices - which range from
annoying to downright disgusting if you're a customer - are turned on their
head.

Is anyone doing this and care to share their story?

~~~
akeefer
I work in enterprise software, and we have a fairly traditional sales and
pricing model from what I know (a fair one, but nothing ground-breaking, aside
from the fact that most of our licenses are yearly instead of perpetual).
There are two things to consider.

First of all, as soon as you price as SaaS, you're seen as a cost center to be
minimized, and you'll be able to charge far less even though you're providing
a more valuable service by both developing the software AND running the IT. So
ironically, it costs you more, and you can charge less for it. That just seems
to be the way people evaluate these sorts of things: someone that would pay
$500k per year for the license would probably balk at $500/user for 1000
users. Think of it as akin the app store effect: people are conditioned to
SaaS being (relatively) cheap, but are used to enterprise software being
expensive, so just like people expect iPhone apps to be irrationally cheap,
they expect SaaS to somehow be cheaper for them than just buying the stuff.

Secondly, the software license is a small, small portion of their actual TCO
of the software. A big company laying out $1 million a year for a software
license might be spending 10x that in total to implement and integrate the
system, do any necessary data extractions and transformations, train up new
users, buy new hardware, etc.

I think about the best you can hope for is an enterprise vendor that delivers
software that actually works and that doesn't price gouge you for doing it.

~~~
christofd
Very interesting stuff!

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gcv
One more tip, this one perhaps more focused on the sales side: find a manager
in this big company who will lose his job unless he solves the problem your
software purports to solve. This is doable, although you need to have a little
inside information about the burning problems in the company or industry you
want to sell to.

Alternatively, find a very senior person in that organization to work as your
evangelist, someone who deeply cares about doing the organization doing The
Right Thing, and who has the clout to ram things down other senior people's
throats. Such people are rare, but might be your only way to get a foot in the
door.

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mattculbreth
Argh, wish I had read this in 2007 when I was starting an enterprise software
company. Every one of these resonates with me, mostly in a bad way. :)

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dshah
Thanks to who ever drudged this article up (it's 3+ years old!). I had _just_
gotten rid of that nervous twitch induced by any mention of "enterprise
sales". :)

My best wishes to all of you that are dealing with these issues.

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ShabbyDoo
So, what about the JBoss-style pay for services/support/training model? It's
clear from Benchmark Capital's portfolio that they're on-board with this --
Terracotta, Hyperic, SpringSource, Pentaho, etc.

Is this a viable model for a start-up? I introduced a piece of JBoss software
at a Fortune 500 company, and they paid $45K/year in support without much
thought or a salesperson even visiting. And, they were delighted by how
inexpensive it was!

~~~
dshah
Yes, I think this is a viable model. Essentially, what folks like JBoss are
doing is reducing the cost of acquisition by leveraging lighter-weight
distribution techniques.

~~~
ShabbyDoo
I've been in roles where sales reps from various OS companies, and I've been
asking them about their sales processes. I think that most sales are of the
"we tried it, liked it, are using it, and now we want a support contract"
sort. However, I think that JBoss often goes into large organizations where
the maintenance fees on Weblogic, etc. exceed the annual support costs for
their OS replacements. I'm also told that OS offerings like Hyperic do well
because operations groups have more money to spend than development groups,
and their asses are on the line to keep stuff working.

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rams
I made a pathetic attempt at 15 secs of fame with a Rams' Law of Enterprise
Software Sales:

"Never attribute to stupidity that which can be adequately explained by
corruption."

[http://cycle-gap.blogspot.com/2009/05/rams-law-of-
enterprise...](http://cycle-gap.blogspot.com/2009/05/rams-law-of-enterprise-
software-sales.html)

Dharmesh is rather polite.

------
nico
Great tips, I have gone through most of the issues you name, and only after
long months of hard work, difficult sales and negotiations, we've been
fortunate enough to survive and learn similar stuff to the article's tips. I
just wished I had read this before (about a year earlier!).

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dpcan
He lost me at the real estate example, and now I don't know if I can trust
anything in the article.

Selling to agents on a per-transaction basis does not make sense to agents. It
just means it will cost MORE in the long run than what they could just pay up
front.

So why not an example that he KNOWS works? Does he even have one? Is he just
guessing at everything? The author needs to qualify his statements because his
example was way off base.

~~~
jpwagner
The example makes sense, but it's not explained well.

Remember that he gave no specifics of what the software does.

Suppose the software is for calculating commissions and stores the data on a
centralized server. Now suppose they charge by how much data you store. This
would be the "variable price" he tries to portray and the price would be
somewhat correlated with number of sales which may appeal to some agencies.

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run4yourlives
My short though experienced advice for anyone thinking about making a go a
enterprise software: Don't.

~~~
jpwagner
Do you have anything more substantive?

Clearly some people make it work (Benioff, Ellison,...). Are you saying the
people on HN specifically can't succeed?

~~~
run4yourlives
No, I'm saying that it's more enjoyable to poke your eyes out one at a time
with tweezers than it is to make a business out of the enterprise market.

The whole reason that you can quote CEO's by name is that they are such an
exception to the rule.

The people here at HN are much too smart to require the journey to success to
be one of self induced torture - there is a much easier and happier path to
success.

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smithjchris
I think the people who buy enterprise software should read this. It's about
"how to get raped" and can teach you some policies to counter things like
this.

They also forgot: Try doing a cash back-hander to the CTO, which is considered
almost standard practice in the consultancy business in the UK. I could name
some rather big names on that front.

Best buy (which I will get flamed off the site for): Buy SharePoint, MS CRM
and a number of Office licenses and hire a couple of decent people permanently
to look after it and build your apps on it. It's cheaper and you get what you
want, according to your schedule.

~~~
californiaguy
> Buy SharePoint, MS CRM and a

So avoid buying enterprise software and related service contracts... by buying
enterprise software and related employees?

~~~
smithjchris
That is precisely the idea. And it works. How do you think 90% of the legal
and accountancy firms in London work?

