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How to price enterprise software

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112 pointsarihelgason36 comments

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.

Great points. I'd just like to add that the key here is to be cost conscious - i.e. cheap.

One of Joel's better articles for those that haven't read it explains why: http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...

Good article for pricing in general, but Joel doesn't seem to understand enterprise software sales. His analysis of bad idea #2 ignores ROI. This model works when there is real customer pain being solved by the application.

This model works when there is real customer pain being solved by the application.

I think the point here is that that is rarely the case. Mainly because the "customer" that buys is disconnected so much from the "customer" that will use the software that both the pain and the ability of the application to solve said pain are woefully misunderstood.

Sounds like you misinterpreted your customer requirements, but that doesn't mean everyone has to.

If I make an investment, say in a mutual fund, I am "using" my money even if the mutual fund is "using" my money.

The "use" in each case is different, but the value needs to align with the buyer.

If a child wants candy, it's up to the candy manufacturer to realize that they have to sell "healthy" candy, because the buyer is the parent. But the parent "uses" the candy in giving the child a treat, making them happy, and not hurting their health. That has to come across in the marketing.

The most difficult part here is probably around integrations. As you point out, piggy-backing on some existing system is one way to make that easier, but it makes it hard to replace core parts of the system, and it makes the SaaS model far less attractive. I think it's a great idea where it can work, but you're not going to replace the SAP/Oracle deployments themselves that way, or the legacy mainframes.

Right. Until the economy sours and vice presidents look to cut budgets to save their asses. Once one of them asks, "Why are we paying $100K per month in Phoenix when we have almost the same thing running in Cleveland for $10K?" That's when you have to be ready for a "corporate mandate".

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.

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?

We're doing it, having built an enterprise web app. Our goal is to make it accessible enough that buyers can come to us and sign up without having to go through a cumbersome consultative selling process.

Pricing is kept as transparent as possible.

Does it work? Having launched very recently it's too early to call.

A couple of observations:

- Buyers aren't used to the self-service model. The need may be pressing in a few cases. But if you rely on buyers being desperate and seeking you out, you'll limit yourself. Good salespeople will identify the need before the buyer does.

- Direct sales are expensive. As long as we're doing them, their cost & the longish sales cycle must be accounted for in pricing.

Often it's the internal cost of switching (moving from legacy systems, retraining staff, etc.) rather than the price tag that discourages buyers. Old-style consultative selling can do an excellent job of working through those issues. This is especially pertinent for small companies that don't have in-house IT staff.

Wow, arihelgason, looks like you guys are doing great work!

Nice name, cool web site, pricing & features right up front.

Only problem, the video crashed my browser, and I couldn't find screen shots any other way.

Keep up the good work.

We tried, and it didn't work for us. Customers reverted back to normal behavior, as did we. Plus, investors (with no exception) all told us it wouldn't work, that customers were going to continue buying enterprise software just as they had been.

Can you say what you tried and what sort of response you had? Was it pricing model, sales approach or transparency? Was your product aligned with your marketing and sales approach (ie more like consumer-grade software which is a bit shiny and nice to use with simple things being easy and hard things being possible) or the grey-clunky-and-feature-rich traditional sort?

Were you doing SaaS (like the World on a Hangar guys) or more traditional software-on-a-dedicated-box-or-three?

We were doing a Business Intelligence app as a service, mixing it with social stuff. Was (and is) cool. Tried to originally pitch it as ~ $50/user/month, but it never really sank in to a customer's mind. When we starting describing it as an appliance for $X flat fee, we got eyes opening. When we then said we'd sell it just like Business Objects, multiple $100k / per site installation, it was like we started speaking English.

Did you consider an AppExchange App and piggybacking off Salesforce?

Also remember that the larger prospects are going to be more "old-school", so aim for the small early adopters.

Not to me unfortunately. Can you explain some of those terms? I googled around, but how is Business Objects sold?

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.

Very interesting stuff!

I think Atlassian is a good example of what you are looking for. They certainly have sales people, but you can buy licenses on their website. Their product pages seem designed to provide one with useful information instead of useless marketing babble. They provide free trials for their products that don't require that you talk to anyone. Their development process is quite transparent. They even provide source code to paying customers (again without having to contact them).

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.

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. :)

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.

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!

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.

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.

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...

Dharmesh is rather polite.

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!).

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.

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.

Yeah, sorry about that example. There were much betters ones out there that I could have used (but it was likely late, and I was too lazy to try and come up with them at the time).

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

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?

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.

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.

> Buy SharePoint, MS CRM and a

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

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

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