5 ms·

How to price enterprise software

112 points by arihelgason 17y ago

dpcan 17y ago
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 17y ago
  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.
- dshah 17y ago
  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).
ShabbyDoo 17y ago
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 17y ago
  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 17y ago
    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.
mattculbreth 17y ago
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. :)
rams 17y ago
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-software-sales.html http://cycle-gap.blogspot.com/2009/05/rams-law-of-enterprise... Dharmesh is rather polite.
com 17y ago
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?
- arihelgason 17y ago
  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.
  - edw519 17y ago
    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.
- mattculbreth 17y ago
  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.
edw519 17y ago
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.
- run4yourlives 17y ago
  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/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
  - jpwagner 17y ago
gcv 17y ago
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.
dshah 17y ago
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.
run4yourlives 17y ago
My short though experienced advice for anyone thinking about making a go a enterprise software: Don't.
- jpwagner 17y ago
  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 17y ago
    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.
smithjchris 17y ago
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 17y ago
  > Buy SharePoint, MS CRM and a So avoid buying enterprise software and related service contracts... by buying enterprise software and related employees?
  - smithjchris 17y ago
    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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nico 17y ago
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!).

112 points by arihelgason 17y ago

dpcan 17y ago

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 17y ago
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.
dshah 17y ago
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).

ShabbyDoo 17y ago

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 17y ago
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 17y ago
  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.

mattculbreth 17y ago

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. :)

rams 17y ago

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-software-sales.html http://cycle-gap.blogspot.com/2009/05/rams-law-of-enterprise... Dharmesh is rather polite.

com 17y ago

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?

arihelgason 17y ago
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.
- edw519 17y ago
  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.
mattculbreth 17y ago
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.

edw519 17y ago

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.

run4yourlives 17y ago
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/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
- jpwagner 17y ago

gcv 17y ago

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.

dshah 17y ago

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.

run4yourlives 17y ago

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

jpwagner 17y ago
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 17y ago
  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.

smithjchris 17y ago

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 17y ago
> Buy SharePoint, MS CRM and a So avoid buying enterprise software and related service contracts... by buying enterprise software and related employees?
- smithjchris 17y ago
  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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nico 17y ago

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!).