Archive for February 2010

What is the Price and What is the Cost?

Enterprise software pricing runs the gamut from nominal to 100s of thousands of dollars. Unless software for enterprise search reaches a commodity status with a defined baseline of functional specifications, the marketplace will continue to be confused and highly segmented.
What buyers need to do first is to stop limiting their procurement selection choices based primarily on license prices. When enterprises begin their selection by considering prices first, many options are eliminated that may be functionally more appropriate and for which the total cost of ownership may be even less.
Product pricing correlates more to the market domain in which a vendor sells or aims to sell than to actual product value per installed user. Therefore, companies in the small to mid-range are particularly vulnerable to unreasonable licensing. I have written about this before but it bears repeating, the strength of the underlying technology has little to do with the price but can influence the total-cost-of-ownership (TCO) dramatically.
Buyers often believe high license price relates to top product value; in general you still need to add another 60-80% for services and support costs to get that value out. But let’s look at the business reality and corporate context for sellers of high-priced enterprise search.
Net sales of any company that is large is a significant determinant of its reputation and potential staying power in its industry. However, when actual sales for a search product line are a tiny fraction of total company revenue, potential buyers of enterprise search need to know that and factor it into their decision-making for these reasons:
• The largest software companies are heavily vested in subscribing to analyst services that write about the industry. They are diligent in reporting their sales figures to those companies and publications that do annual surveys on various industry segments. The reporting is usually careful to note when revenues for a particular sector ( like search) are not broken out, but this often escapes the notice of buyers who only see that company X has enormous revenues compared to others. This leaves the impression that they are also a standout in the search sector.
• The fact that a company offers many software products, of which search is only one, has often resulted from acquisition of a lot of products. Search may only be in the mix because it complements other products. The company may or may not have actually retained the technology gurus who originally designed, developed and supported the software. A lot of software quickly becomes stale once acquired by a third-party.
• When a very large company offers many products, it focuses sales, account management, support and development on those with the largest revenue stream or growth potential. Marketing for marginal products may be sustained for a longer period to bring in “easy” business but unfortunately, for too long, search has been treated as a loss leader to attract revenues for other product lines. Where “search” fits into a mix of products, how well it will be serviced and supported over time may be difficult to discern.
• The final situation that happens for very large software companies is that competition is an ever-present cause for shifting agendas. The largest software firms will often abandon technologies whose architecture, unique functions and even their customers do not fit their changing market interests. They will abandon products for which they have paid huge sums once the initial value of the procurement has been realized, when a product’s technology has been captured for embedding in other product suites, or if the product is no longer viewed as strategic.
In the next blog posting we’ll take a look at some other reasons that vendors make and then abandon their acquisitions. But in the meantime, here is a recommendation to buying decision-makers:
When you see a very long list of customer logos on the web sites of major software vendors there is important context that is not provided. Large corporations can and do buy competing products all the time. Some products get into enterprise-wide use and adoption for the long term while others are used briefly or in smaller applications. You can’t know whether a product is even in use in the company whose logo is displayed. Because it is almost impossible for an outsider to find the actual buyer/user of a product in a large enterprise; the posted logos tell you little. Inside an enterprise one may discover endless tales of when, why and how competing products were acquired, many as part of package deals or through a subsidiary acquisition. What is also true is that stories of successful implementations or brand loyalty do not abound.
For you who are new to enterprise search, take control of your own destiny by educating yourself using a lower priced product with a good reputation for a niche application. Invest your budget instead in human resources (internal or 3rd party) to craft the solution you really need. Start with a vision of appropriate scale, tackling a small domain of high value content that is currently hard to find in your organization.
Use the experience of implementing and leveraging this search product and engaging with the vendor to bring a deeper understanding of the technology and applications of search. Working with a vendor dedicated exclusively to search will have another cost benefit because of the focused attention you are more likely to receive. Delving deeply into planning and implementation for a targeted result will have a cost that brings multiple benefits moving forward to larger and more complex implementations – even if you move on to another product.