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A lot of customers have commented to us this year about their subscription renewals - with budgets being tight, people have quite rightly questioned the value they are getting year on year for their money. One comment we often hear is - why do I have to pay for a renewal if the component I am using has not been updated for the last 12 months? I guess a valid point if they are being asked to pay for a subscription renewal for 20+ or even 100+ components - if the 1 component they are specifically using has not changed. Or if they are being asked to pay 40% of the original subscription charge for a renewal, for what turns out only to be a maintenance and support deal - with no upgrades or new features. Remember - for some customers - the suite deal you have created may not be as sweet as it seems.
So if it is not sweet for all your customers - is having a suite with a subscription a good deal for your software business? Let's take a look at 2 example products over a 4 year period.
PublisherA - The Product Specialist - With a License + Upgrades Model
Product PublisherA has created ProductA and is selling it for $1,200 for V3.0, with an annual support charge of 20% of the value of the original license at $240 per year. When ProductA V4.0 is released PublisherA creates an upgrade price option from V3.0 to V4.0 for 50% off at $600 and an upgrade from any other version at 33% off at $800. He also decides to leave the annual support charge the same at $240 per year. PublisherA decides to revise his product every year to make sure his product is up to date with the latest technology platforms, to get new releases out regularly to reduce the support load - with the aim to make his customers happy and hence keep them using his product.
So what does the license revenue look like for a customer who moves forward with each version?
Year 1: $1,200 New ProductA V3.0 License Sale + $240 Annual Support
Year 2: $600 Upgrade ProductA V4.0 License Sale + $240 Annual Support
Year 3: $600 Upgrade ProductA V5.0 License Sale + $240 Annual Support
Year 4: $600 Upgrade ProductA V6.0 License Sale + $240 Annual Support
Total: $3,960 = $3,000 + $960 (With Annual Support)
or
Total: $3,000 (Without Annual Support)
So $3,960 from the customer over the 4 years of using the product. At the low-end of the possible range, if PublisherA decides not to charge for annual support - the 4 year total is $3,000. At the high-end of the possible range, if PublisherA had also raised his price for a new license gradually over the period with a $200 rise for each new release he could have got even more for the upgrades - so perhaps even $4,260 over the 4 year period is possible. In summary - low-end $3,000, typical $3,960 and high-end $4,260 over 4 years.
PublisherB - The Product Generalist - With a Subscription + Renewals Model
PublisherB opts for a different approach, using a subscription model and bundling many components or products together into one offering with the same initial subscription license price as PublisherA of $1,200. PublisherB offers many components or products in his suite and he does not have enough resources to guarantee that he can revise each element of that suite once per year. So he has to compromise on his subscription renewal price to try and keep all his subscribers paying annually by offering a renewal at only $400 per year. However - he does offer great value, loads of additional components or products for free - plus bug fixes & updates are included in the subscription price as well.
Year 1: $1,200 New ProductB 2009 Subscription Sale
Year 2: $400 Renewal ProductB 2010 Subscription Sale
Year 3: $400 Renewal ProductB 2011 Subscription Sale
Year 4: $400 Renewal ProductB 2012 Subscription Sale
Total: $2,400
So $2,400 from the customer over the 4 years of using the product. PublisherB also tends to find it difficult to raise his price each year, as customers expect the new components or products to be added to the suite for the same sweet deal. So the publisher finds it difficult to unlock the value of all the development effort he is putting in - as well as finding it difficult to explain exactly what is inside his suite of 20+ or 100+ components or products. The more things he puts in the suite the more difficult it is to update everything and keep all his customers happy - so % renewal rates may fall. This means to earn more from this model, PublisherB will probably have to raise the subscription renewal price for the customer - which in turn may make the % renewal rate fall even further.
So what does the customer prefer? The customer probably prefers to get their chosen component or product updated at least once per year to fix bugs, support the latest platforms etc. Which arguably you can achieve as a product publisher using either of the above examples.
But and it is a big BUT - which model is better for your business? Using the examples above PublisherA is going to be between 25% and 65% better off than PublisherB. Even if PublisherA fails to revise the product in 1 of the 4 years - he can still make $3,360 compared to $2,400. I have used typical license models for new licenses sold with annual support, followed by an upgrade program for PublisherA and for subscriptions with annual renewals for PublisherB. So this is real world pricing and the result may surprise you... or least make you STOP AND THINK!
Perhaps you don't have to give support away for free? The industry norm is to charge 15%-20% of the initial license fee per annum for software support - so why aren't you charging for it? More importantly, the idea of throwing everything into a single suite is possibly not such a sweet deal for your business after all! It is difficult to unlock the value of all your software development efforts if you do not create separate products and price them according to that effort and/or the value to the customer. Perhaps it is time for you to re-visit your product road map, business plan and license model for 2010?
If you would like to discuss this topic further or would like advice and guidance on product licensing models then contact Harry Kelly:
harryk@componentsource.com |
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I don't know about your recent sales, but September has been a blockbuster month here at ComponentSource! In 2008 we had a great sales month in September and this year we have gone one better and managed to beat it - which made me think - if we can do this in a supposedly slow economy - what can we achieve in 2010?
There will be lots of reasons for you to launch new products, new editions and new versions early in 2010 - with Windows 7, Visual Studio 2010 and many other new products from Microsoft and others hitting the streets. So having hunkered down and hidden yourselves away writing lots of great new code in 2009 - it is now time to blow the dust off your marketing plans and start thinking about more positive things than the global credit crunch - like growing your sales!
So how are you going to tell all those developers and IT pros that you have not forgotten about revising your product? Or that you now support Windows 7 or Windows Server 2008 R2 or Exchange Server 2010? Or that you now have WPF or Silverlight editions of your components for Visual Studio 2010? Or that you have created a new SharePoint utility - that will save them lots of time and effort...
ComponentSource is unique in that we can offer you the ability to market your products on-line worldwide in multiple languages, as well as by email in 9 languages including Japanese, Korean and Chinese. Plus we have not forgotten about the importance of print - with our own paper catalogs for the US, European, Japanese and Korean markets - as well as co-op marketing in magazines in the US, Europe & Asia/Pac.
So no matter how you want to get you message across - we can do it for you GLOBALLY!
On-line: https://www.componentsource.com/services/publisher/marketing-web-site-advertising.html
Email: https://www.componentsource.com/services/publisher/marketing-email-advertising.html
Paper catalogs: https://www.componentsource.com/services/publisher/marketing-paper-catalog-japanese.html
Magazines: https://www.componentsource.com/services/publisher/marketing-magazine-advertising-asia-pac.html
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ComponentSource US News
Are you exhibiting or attending the Microsoft PDC 2009 Conference in Los Angeles, CA in November? If so - we would like to meet you to discuss your product plans for 2010. Please contact Chris Brooke to arrange a meeting: chrisb@componentsource.com
European, Middle East & Africa News
Are you exhibiting or attending the Microsoft Tech Ed Europe 2009 Conference in Berlin, Germany in November? If so - we would like to meet you to discuss your product plans for 2010. Please contact Harry Kelly to arrange a meeting: harryk@componentsource.com
Asia/Pac News
Due to increased demand from our customers in Japan, we have doubled the number of catalogs that we plan to print and distribute in the coming year (2010). For more info visit https://www.componentsource.com/services/publisher/marketing-paper-catalog-japanese.html or email Scott Sata: scotts@componentsource.co.jp
Market News
GrapeCity has announced that they have acquired FarPoint Technologies the creators of SPREAD. This expansion creates a solid platform for BI or business intelligence solutions for our customers, as GrapeCity acquired ActiveReports created by Data Dynamics earlier this year. |
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