Software business models and the evolving Ecosystem:

Ok, I sell to many firms and we call them ISV’s, but with many new terms like SaaS, ASP, Open source, Web 2.0, Advertising/PPC revenue based terms rising, I thought it was time to establish whether there is any new kind of magic brewing in the industry I live in.

This happened while categorizing our very well qualified database of ISV’s(I mean Independent Software Vendors) based on what we are selling to establish a good ground for the sales team to play on.  A debate arose and after a lot of discussion we decided to segment our market so that we would know what kind of service would be a good for a prospect.

I’m penning down some of the thoughts which came into my head while doing this exercise.  We know that many ISV’s use their pricing and delivery models to gain an edge over their competition and this means it was time to consider their business models.

Software can be described economically for pricing purposes based on the following criterion:

1. What is sold?

Service
Support
Run-time software
Application access on web
Source code
Media: web, CD, etc

2. Time?

One-time
Perpetual
Subscription
Quote-based, etc

3. Pricing policy?

Per site
Per user
Per CPU
Per use, etc.

I come across some ISV’s for which the pricing model is often mixed and used the following criterion for pricing their S/W (We have done several new product development engagements) products, which sometimes have no direct bearing to the actual costs accrued 😉

Cost-based: Cost + x%

Good value: Based on price/performance.
Meet the competition’s pricing.
What the market will bear. Skim highest value
Customers who will pay the highest premium.
Penetration. Price to gain market share.
Follow the industry pricing leader.

I also managed to get some great insight of market trends from Jim Geisman’s(Principal / Founder at http://www.softwarepricing.com) presentation at software 2006.     

So the pricing might be based how well you manage the amount of money you spend in R&D and marketing,which, are the biggest spends as the manufacturing costs are very low.

The ecosystem is changing as McKinsey’s, Vanessa Colella explained at software 2006.

Posted by Digvijay Singh Rathore.

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