Kumar-
Remember the three Cs of pricing:
1. Cost: What does it cost for you to offer the product or service? This, plus an acceptable profit margin sets the lower bound on what you can charge.
2. Competition: What your customers charge sets the standard for the industry. Unless you have some form of market power that allows you to change the price upwards, or you think you have the resources to start a price war, you need to be in this ballpark.
3. Customers: Assess your customer's willingness to pay. This sets the upper bound on your pricing.
Each of these factors will influence your eventual decision. NPV and other analysis is good, but do it from the customer's point of view, not yours.
I am not sure that is an answer to your question, but it is a framework for thought.
- Duncan
On Jun 7, 2006, at 1:22 PM, Yogish Gowda wrote:
Hi Kumar,
I found this spread sheet (in case you don't have this already) on MicroSoft Website, its a comparison of different SPLA arrangements that client can enter into with MS and it gives a general idea of the factors to be considered (as mentioned by John and Remy) in a situation like yours.
Regards
Yogish
On 6/7/06, kumar pandey <pandeykum@xxxxxxxxx> wrote:Hi folks,
Let me welcome you to the group by putting up a question which I have been struggling with for the past few days.<Copy of Microsoft_Volume_Licensing_programs_Comparison.xls>
Many of you in the hi-tech world are probably aware that Microsoft has developed its Services Provider License Agreement (SPLA) to sell software on a pay as you use basis. this allows enterprises or web developers to subscribe for the software on a monthly basis as opposed to paying a huge upfront cost. The financial advantages are obvious to the consumers, they get to pay off the software costs as business operating expense as opposed to capital costs.
My question is around pricing. Microsoft says their software under SPLA is priced so that customers pay the same amount, over the life of the software,in paying on a monthly basis, as they would have paid upfront. Now, how does Microsoft or any other software developer be able to predict the life of a software when technology is changing so fast?
Does anyone have any idea what industry standards are? Does anyone have any idea on how software could be priced and packaged differently.
Any thoughts, insights will be appreciated.
--
Kumar Pandey
Chief Operations Officer
Flatburger Inc.
