Stanford MBA programPresentation byMark Leslie, CEOVeritas SoftwareApril 10, 1998
Mark LeslieFounding CEO of Veritas Software (~$150M runrate, $2.0 B market cap)Founder/Chairman -- Versant ObjectTechnolog...
Pricing and the Revenue ModelPricingbottoms upcompetitive pricingproprietary pricingpricing relative to distribution chann...
Pricing and the Revenue ModelRevenue ModelChannels of distributionMultiple products, product life cycleBuilding the revenu...
Pricing -- bottoms upWhat is the “standard revenue model” for yourindustryunit price = (COGS + Expenses + profit)/unitssta...
Pricing -- competitiveWho is the competitionPricing practices in the industrycompetitive product comparisonluxury good, or...
Pricing -- proprietaryBest situationno direct product competitionbut, still competing in a segment, and for share ofsegmen...
Pricing <--> channelinterdependentDirect FieldSR+SE+office+expenses+ovhd = ~$400 -- $500K/yrAt $1.0 M/yr, COS = 50%!ASP mu...
Web# page hits, time per page, # banners/page/unit time, $/bannerwho are you attracting, what are they worth?mktg cost to ...
Pricing/Distribution channelCase Study -- Veritas SoftwareVeritas SoftwareEnterprise storage management softwareFile and d...
Pricing/Distribution channelCase Study -- Veritas SoftwareList PricesList prices are tiered for machine size$1.5K --> $40K...
Channel is continuousChannel Discount VolumeEU/Direct 0 – 20% Site LicenseReseller 30 – 40% +5%, coopDistributor Rsllr +10...
Pricing -- dealsThe BIG, but BAD dealThe gooda bad deal is only once, (your) equity is foreverThe badsetting precedent in ...
Pricing SummaryStrategyCOGSBig DealsProprietaryCompetitionChannel
Revenue Model -- ChannelsProduct <--> Channel <--> Sales/Mktg costsSales and marketing cost modelDirect FieldDirect Telesa...
Revenue -- Multiple productsHow fast can new variants or new products bedeveloped, layered into planHigh priced productsCo...
Building the Revenue ModelProduct constrainedproduction capacityorganizational capacitycustomer acceptance limitationsSale...
Building the Revenue ModelSales model -- continuedExampleTypical industry SR quota = $1M/yrLess residual business = $600K/...
Investment implicationsNeed to invest before harvesteither expensive sales force, orbig marketing program, orboth!Reasons ...
Investment implicationsReasons to invest rapidlydefined market windowcompetition/mind sharegeographic coveragestart-up dri...
Case Study -- Versant ObjectTechnologyFormed in 1988Object data base companyThree major competitors formed within 12months...
Versant 1991Q1 Q2 Q3 Q4 1991 Q1 Q2 Q3 Q4 1991Plan Plan Plan Plan Plan Actual Actual Actual Actual ActualRevenue:License 31...
Versant 1992RIF -->Q1 Q2 Q3 Q4 1992 Q1 Q2 Q3 Q4 1992Plan Plan Plan Plan Plan Actual Actual Actual Actual ActualRevenue:Lic...
Versant 1997Q1 Q2 Q3 Q4 1997 Q1 Q2 Q3 Q4 1997Plan Plan Plan Plan Plan Actual Actual Actual Actual ActualRevenue:License 2,...
Versant -- discussionWhat motivated management in the planningprocess?What could have been done differently?What happened ...
The Revenue ModelRevenue ModelProduct/price/channel indivisibleMultiple products, product life cycleBuilding the revenue m...
Stanford MBA programPresentation byMark Leslie, CEOVeritas SoftwareApril 10, 1998
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Stanford 80410 a

  1. 1. Stanford MBA programPresentation byMark Leslie, CEOVeritas SoftwareApril 10, 1998
  2. 2. Mark LeslieFounding CEO of Veritas Software (~$150M runrate, $2.0 B market cap)Founder/Chairman -- Versant ObjectTechnology -- 10 yearsboard member -- D2K (data warehousing)ex board member -- Aurum Software (acquired),Worldtalk, numerous private companies
  3. 3. Pricing and the Revenue ModelPricingbottoms upcompetitive pricingproprietary pricingpricing relative to distribution channelpricing/deals relative to cost of equity
  4. 4. Pricing and the Revenue ModelRevenue ModelChannels of distributionMultiple products, product life cycleBuilding the revenue modelInvestment implicationscase study -- Versant Object Technology
  5. 5. Pricing -- bottoms upWhat is the “standard revenue model” for yourindustryunit price = (COGS + Expenses + profit)/unitsstandard cost on what volume assumptiondo you have a manufacturing advantagebottoms up pricing sets a lower limit on pricing
  6. 6. Pricing -- competitiveWho is the competitionPricing practices in the industrycompetitive product comparisonluxury good, or commodity good
  7. 7. Pricing -- proprietaryBest situationno direct product competitionbut, still competing in a segment, and for share ofsegment dollarsprice needs to be justifiedROI based on increased R or decreased I (labor?)time to market advantageContext of longer term pricing strategymarket share vs. boutiquei.e.: semiconductor pricing curves
  8. 8. Pricing <--> channelinterdependentDirect FieldSR+SE+office+expenses+ovhd = ~$400 -- $500K/yrAt $1.0 M/yr, COS = 50%!ASP must start at $25K, oppty to $500 --$1,000K pertransactionDirect TelesalesSR +++ = ~$200K - $250KASP must start at 5K, go to 50K per transactionChannel30% -- 55% channel cost+ high marketing costhigh volume, low cost products
  9. 9. Web# page hits, time per page, # banners/page/unit time, $/bannerwho are you attracting, what are they worth?mktg cost to get hitssales cost to sell ad spaceInternationalapplicability of productcosts to internationalize/localizecosts to marketdistribution or direct$US plus international upliftPricing <--> channelinterdependent
  10. 10. Pricing/Distribution channelCase Study -- Veritas SoftwareVeritas SoftwareEnterprise storage management softwareFile and disk management, backup, HA failover, etc.Three tier distribution -- Direct, OEM, reseller~650 employees1997 revenue $121 M, revenue growth of 67%,operating margin 25%market cap ~ $2.0 billion
  11. 11. Pricing/Distribution channelCase Study -- Veritas SoftwareList PricesList prices are tiered for machine size$1.5K --> $40KList prices are different for OS platforms (UNIX vs.NT)about 15 underlying products, but...some products come in lite and full versionsmultiple products are bundled into application focusededitionsupgrades from various starting points yield yet more“products”combinations/permutations are extremely complex
  12. 12. Channel is continuousChannel Discount VolumeEU/Direct 0 – 20% Site LicenseReseller 30 – 40% +5%, coopDistributor Rsllr +10% +2%, coopInt’l Distributor 50% (Int’l pricelist)+10%Binary OEM 60 – 70% +5%Source/option 80% +5%Source/bundled 85% +5%Source/bundledLite Product95% +5%Pricing/distribution channelCase Study -- Veritas Software
  13. 13. Pricing -- dealsThe BIG, but BAD dealThe gooda bad deal is only once, (your) equity is foreverThe badsetting precedent in the marketinternal sales disciplineThe uglyAre you giving away your company’s future
  14. 14. Pricing SummaryStrategyCOGSBig DealsProprietaryCompetitionChannel
  15. 15. Revenue Model -- ChannelsProduct <--> Channel <--> Sales/Mktg costsSales and marketing cost modelDirect FieldDirect TelesalesResellerWebInternational
  16. 16. Revenue -- Multiple productsHow fast can new variants or new products bedeveloped, layered into planHigh priced productsComplex productslong cyclesservice businessLow priced productssimple productsshort cyclesplanned obsolescence, replacement business
  17. 17. Building the Revenue ModelProduct constrainedproduction capacityorganizational capacitycustomer acceptance limitationsSales constrainedAverage annual sales quota in startup -- no residualssales overhead modelsales productivity modelgeographic dispersion, NA, Int’l
  18. 18. Building the Revenue ModelSales model -- continuedExampleTypical industry SR quota = $1M/yrLess residual business = $600K/yrRamp up 0,25,50,100%/qtr = 262.5K first year!!!Vs. cost model of ~ $500K!Strategic Dealskey partnershipprestige endorsementassure revenue streamcheaper than equity
  19. 19. Investment implicationsNeed to invest before harvesteither expensive sales force, orbig marketing program, orboth!Reasons to invest slowlyprove product correctnessprove product completenessprove channel correctness“cheaper” breakeven
  20. 20. Investment implicationsReasons to invest rapidlydefined market windowcompetition/mind sharegeographic coveragestart-up drive for success“faster” breakeven
  21. 21. Case Study -- Versant ObjectTechnologyFormed in 1988Object data base companyThree major competitors formed within 12monthsObjectivityODIServio-LogicDirect selling model“Hot” new technology/ “hot” new market
  22. 22. Versant 1991Q1 Q2 Q3 Q4 1991 Q1 Q2 Q3 Q4 1991Plan Plan Plan Plan Plan Actual Actual Actual Actual ActualRevenue:License 311$ 485$ 765$ 1,005$ 2,566$ 112$ 186$ 91$ 210$ 599$Services 100 160 280 310 850 69 75 84 68 297Total revenue 411 645 1,045 1,315 3,416 181 261 175 278 896Cost of revenue:License 2 5 20 35 62 5 11 6 8 30Services 10 15 40 50 115 8 19 11 13 51Total costs 12 20 60 85 177 13 29 18 21 81Gross profit 399 625 985 1,230 3,239 168 232 158 257 815Operating expenses:Marketing and sales 360 355 410 475 1,600 372 471 483 620 1,948R&D 500 475 495 510 1,980 480 478 453 473 1,884G&A 400 400 420 420 1,640 395 396 426 455 1,672Tot Op Exp 1,260 1,230 1,325 1,405 5,220 1,247 1,346 1,362 1,549 5,504Income (loss) fromops (861) (605) (340) (175) (1,981) (1,079) (1,114) (1,204) (1,291) (4,689)Other income 31 40 20 15 106 4 (26) (1) 11 (12)Net income (830)$ (565)$ (320)$ (160)$ (1,875)$ (1,075)$ (1,140)$ (1,205)$ (1,280)$ (4,700)$
  23. 23. Versant 1992RIF -->Q1 Q2 Q3 Q4 1992 Q1 Q2 Q3 Q4 1992Plan Plan Plan Plan Plan Actual Actual Actual Actual ActualRevenue:License 510$ 2,715$ 1,047$ 3,740$ 8,012$ 292$ 1,113$ 211$ 1,736$ 3,352$Services 65 200 113 320 698 43 142 129 189 503Total revenue 575 2,915 1,160 4,060 8,710 335 1,255 340 1,925 3,855Cost of revenue:License 5 100 10 725 840 5 1,120 15 640 1,780Services 20 35 25 60 140 27 25 35 38 125Total costs 25 135 35 785 980 32 1,145 50 678 1,905Gross profit 550 2,780 1,125 3,275 7,730 303 110 290 1,247 1,950Operating expenses:Marketing and sales 855 1,155 1,280 1,280 4,570 742 1,043 1,229 1,099 4,113R&D 445 1,500 575 700 3,220 443 585 531 523 2,082G&A 540 575 685 790 2,590 522 597 572 662 2,353Tot Op Exp 1,840 3,230 2,540 2,770 10,380 1,707 2,225 2,332 2,284 8,548Income (loss) from ops (1,290) (450) (1,415) 505 (2,650) (1,404) (2,115) (2,042) (1,037) (6,598)Other income 75 55 130 19 65 52 112 248Net income (1,290)$ (450)$ (1,340)$ 560$ (2,520)$ (1,385)$ (2,050)$ (1,990)$ (925)$ (6,350)$
  24. 24. Versant 1997Q1 Q2 Q3 Q4 1997 Q1 Q2 Q3 Q4 1997Plan Plan Plan Plan Plan Actual Actual Actual Actual ActualRevenue:License 2,755$ 3,675$ 4,335$ 7,675$ 18,440$ 1,912$ 5,587$ 7,241$ $6,620 21,360$Services 2,045 2,325 3,165 4,025 11,560 1,873 1,777 2,159 2,020 7,829Total revenue 4,800 6,000 7,500 11,700 30,000 3,785 7,364 9,400 8,640 29,189Cost of revenue:License 350 420 505 750 2,025 237 114 619 475 1,445Services 975 1,110 1,485 2,030 5,600 783 1,182 1,206 1,840 5,011Total costs 1,325 1,530 1,990 2,780 7,625 1,020 1,296 1,825 2,315 6,456Gross profit 3,475 4,470 5,510 8,920 22,375 2,765 6,068 7,575 6,325 22,733Operating expenses:Marketing and sales 2,060 2,580 3,225 4,915 12,780 2,604 3,902 4,726 6,030 17,262R&D 710 825 935 1,465 3,935 937 1,221 1,467 1,600 5,225G&A 375 400 425 475 1,675 495 917 877 960 3,249Tot Op Exp 3,145 3,805 4,585 6,855 18,390 4,036 6,040 7,070 8,590 25,736Income (loss) fromops 330 665 925 2,065 3,985 (1,271) 28 505 (2,265) (3,003)Other income (45) (40) (40) (40) (165) 201 137 120 205 663Net income 285$ 625$ 885$ 2,025$ 3,820$ (1,070)$ 165$ 625$ (2,060)$ (2,340)$
  25. 25. Versant -- discussionWhat motivated management in the planningprocess?What could have been done differently?What happened to the competitors?Were they “faster” or “cheaper” to breakeven?More recently, 1997 vs 1996 revenue grew from$18.4M --> $29.2M (55%), but stock went from$20.00+ to $7.00.What should the board do?
  26. 26. The Revenue ModelRevenue ModelProduct/price/channel indivisibleMultiple products, product life cycleBuilding the revenue modelInvestment implicationsVersant Object TechnologyDon’t forget the profit model!!
  27. 27. Stanford MBA programPresentation byMark Leslie, CEOVeritas SoftwareApril 10, 1998
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