ProductFocus’s Ian Lunn and I will talk through how software product companies make money, and how that’s in direct contrast with how software outsourcing and custom development companies make money. Then we’ll apply that to B2B/enterprise software vendors who may have conflicting business models.
Industrial hardware and enterprise software are both great business, but have very economics, scorekeeping, and development models. To run a strong software business, we may need to retool some operating processes as well as executive assumptions.
Software is intangible: it doesn’t have weight or size or per-unit manufacturing costs. But if we’re in the software business, we have to assign units and prices that reflect our value to customers. And we should be mapping out pricing strategy before we start development, not the day before product launch.
Taking a day off for tourism during my Brainmates/Australia tour, I had a chance to see the power of “free” in a non-tech entrepreneurial setting. Following along the business model literally and figuratively…
Logi is hosting a webinar on developing a successful Software-as-a-Service (SaaS) and business model: SaaS versus Licensed Software, Pricing Tiers, User Experience and Continuous Marketing, Service Metrics and Infrastructure Requirements.
How do we understand value from the customer’s point of view, not just the vendor? How do we choose pricing units, what portion of value can we capture, and why do we have to do the math/thinking in advance for customers?
Three perennial challenges for entrepreneurs and start-up founders are (1) seriously listening to their markets, (2) building customer-side savings/ROI logic, and (3) whole-product thinking. Tiny companies lack formal product managers, but need to apply some product management thinking to these fundamental product/market needs.
One of the first things I ask about with a new product team is “how will a customer justify paying for your product?” An apparently simple question, but I often get blank stares. Here’s a thumbnail of the problem and the process, along with a tiny spreadsheet template.
We recently finished a major pricing exercise with a start-up in the enterprise software space: tuning up their prices, improving their upgrade model, and looking at alternative pricing metrics (i.e. what to meter when quantifying the customer’s usage). A great opportunity to match quantitative models against actual customer behaviors. During the engagement, the client’s sales team identified some real-world messiness that we (as product managers) would prefer to ignore: high-end customers who demand enterprise-wide licenses – instead of limited-use licenses tied to volume. These are sometimes called “all you can eat” or AYCE deals. Let’s describe the situation, then explore a few of the messy conclusions.