The dirty little secret of software pricing

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Software pricing has always been controversial. As the evidence mounts that open source does not control costs, it has become even more critical. How much is software worth? Who should pay for it? What's fair? Should vendors charge per floating license? Per user? For support only? Runtime royalties?

Many business models have evolved over time. Successful policies must accomplish one key goal: the revenue must cover the costs–and then some–of providing the software. However, nobody seems to be upfront and reveal The Dirty Little Secret of Software Pricing. And not understanding that secret costs people, companies, and governments a lot of money.

As a long-term vendor of embedded infrastructure software, we feel it's time everyone knew. You see, the secret is (shhhhh!) . . .

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  • Many business models have evolved over time. Any successful policy must accomplish one key goal: the revenue must cover the costs---and then some---of providing the software. Yousegots ta pay somehow. However, nobody seems to be upfront and reveal The Dirty Little Secret of Software Pricing. And not understanding that secret costs people, companies, and governments a lot of money.
  • The dirty little secret of software pricing

    1. 1. Your systems. Working as one.The Dirty Little Secret of SoftwarePricingStan Schneider, CEO
    2. 2. Quotation: John Q. Customer• Dev seat: $5,339• Floating dev seat: $7,849• Support & maint 20% per seat• Runtimes (per core) 1-100 $559 100-1000 $325 1000-10000 $224 10000+ $145
    3. 3. Fair Questions!• How much does software cost?• How much is software worth?• Who should pay for it?• What’s fair?• Should vendors charge per floating license? Per user? For support only? Runtime royalties?• Where did that price come from, anyway???
    4. 4. Business Model Requirement
    5. 5. The Dirty Little SecretSoftware pricing makes no sense. Vendors makeit all up. The real goal is to charge in proportion to how much money you have. Period.
    6. 6. A Fundamental Conflict Slippery Slope of Vendor Justification Real Cost Customer Incremental Expectations The gap between the vendor’s real software cost and the customer’s incremental desires cannot be bridged. Justification attempts fail.
    7. 7. How to Justify the Gap? • Cost to the vendor • Value to you
    8. 8. Vendor-Cost Justifications
    9. 9. Real Cost Analysis• Valid Costs – Figure out what to build – Develop & maintain code – Match applications to usage – Build awareness – Help users – Operate an organization• No/Little Cost – Production – Shipping – Restricting your use
    10. 10. Can’t Charge for Real Costs!
    11. 11. Support CostIncremental Justification: Everyone must pay for support, because large teams generate more support load Reality: Large teams with local experts lower support costs
    12. 12. License CostIncremental Justification: Providing you with a licenses costs money Reality: That piece of paper is just something to count
    13. 13. Usage Cost Incremental Justification: We charge you for what you use Reality: It doesn’t cost anything to ship you everything
    14. 14. T&M Cost Incremental Justification: We charge only support and services hours Reality: Hours don’t reward excellence or prevent suprises
    15. 15. Sidebar: Controlling CostsThe sole imperative to control software cost is toestablish a stable team working on a single codebase
    16. 16. User-Value Justifications
    17. 17. Software Delivers Real Value!
    18. 18. RTI Connext™: Edge to Enterprise Diverse Small Device General-Purpose Apps/Systems DDS Apps Apps Real-Time Apps Pub/Sub API Pub/Sub API Messaging API Adapters (DDS subset) (Full DDS) (DDS++ & JMS) Connext Connext Connext Connext Micro DDS Messaging Integrator RTI DataBus™ Administration Recording Persistence Monitoring Replay Logging Visualization Connext Tools
    19. 19. API Usage Value Incremental Justification: We charge perdeveloper using our API, because the software brings value to that developer’s code Reality: The value is really to the project
    20. 20. Runtime Value Incremental Justification: We charge per CPU, because that shares the risk Reality: The bigger risk is estimating shipments
    21. 21. Support ValueIncremental Justification: You only pay if you get value from support Reality: Support is a small part of the value received
    22. 22. Bundle Value Incremental Justification: We charge per “product”, because you get more value with more product Reality: You need what you need
    23. 23. So…What Makes Sense?
    24. 24. The Secret (Almost) Makes Sense!• Values are better metrics than costs• The real value is reducing risk – Bigger investment => more risk – More risk => more real value Vendors should charge in proportion to how much you are investing in your project
    25. 25. The Real Key: Simple, Open & Fair• Pricing should be Simple – Base pricing on a single project metric• Pricing should be Open – So you know what you may pay• Pricing should be Fair – Map charges to your investment – Charge support only to those using it
    26. 26. Why Do Vendors Justify?
    27. 27. RTI Pricing: Simple, Open, & Fair Connext Professional Connext DDS Connext Messaging Connext Messaging Connext Tools Connext Tools Connext Integrator Connext Tools @mid $1,995/yr $2,595/yr $2,995/yrvolume • Charge only for developers • Support: $4k/name • Open Community Source Connext DDS: Free – Windows, Linux, Full source – Latest version – Support: $160/hr
    28. 28. RTI Model Summary• Free, full source & binary DDS for community – No cost, no hassle, no strings – Latest version – Share source & binaries – Professional T&M support• Low-cost commercial product for projects – Tools, advanced functionality, warranty, platforms – Simple, open, per-developer pricing – No royalties or deployment fees
    29. 29. No Bull
    30. 30. About RTI• Market Leader – Over 70% DDS mw market share1 – Largest embedded middleware vendor2• Standards Leader – Active in 15 standards efforts – OMG Board of Directors – DDS authors• Real-Time Pedigree – Founded by Stanford researchers – High-performance control, tools history• Maturity Leader – 600+ designs – 400,000+ licensed copies – TRL 9 1Embedded Market Forecasters 2VDC Analyst Report
    31. 31. Global Support and Distribution2008

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