Monday, January 10, 2011

The Taboo of ECM Pricing

Today, I want to write about a traditional taboo in the enterprise content management (ECM) industry: pricing. For some reason, there has always been an aura of secrecy around ECM pricing which I will examine. By the way, you can find a lot of ECM pricing information on the Web and beside that, some vendors such as Oracle and Microsoft make their prices more or less public.

There is an inherent struggle in ECM pricing. The ECM technology can be used for many different applications and that makes it very difficult to differentiate price levels between high and low end use cases. Yes, the same ECM technology can be often applied for different applications. Take process automation, for example: automating vacation approvals is arguably a lower value use case than automating accounts payable. Yet the technology is basically the same. And while customers have no problem paying several hundred/thousands of dollars for an accounts payable seat license, they would never pay that kind of price for employees requesting vacations.

At the same time, any vendor with a multitude of products - no matter if as a result of an organically grown portfolio or acquisitions – has the need to simplify. Early on, the richness of capabilities leads to a proliferation of modules and with several product lines, the customers and the sales force demand simplification. No more nickeling and diming – what’s called for is a smaller number of products with higher values. And a higher value means a higher price. If you fold two products together, the resulting price will be probably higher than either one of the two. If you add another product... you get the idea.

That higher price works well for the high-end use cases that take full advantage of the functionality but what to do about the simpler applications? Yes, you guessed it – the price can be discounted. Discounting is of course limited by the GSA agreement (the government demands a 'favorite nations treatment') but that only applies to deals up to a certain level. Above that, discounting is fair game and quite common - for a very good and logical reason. And the ability to discount gives sales people a powerful negotiation tool, particularly if they keep the prices close to their chest. The sales people love it but customers hate it and so they negotiate hard. And that’s the conundrum of ECM pricing.

The problem is that the new software delivery models such as SaaS or open source don’t change a thing about that. From a pricing point of view, they represent just a different financing model - just like buying a car on credit vs leasing. These new software models bring in an innovative mode of delivery but they still provide functionality that can be used for many use cases – from low-end to high value applications. And the pricing needs to fit them all.
So, how do we solve this dilemma? Solutions are the way to go and pricing needs to closer align with value. In the next few years, we will see not just the emergence of solutions but also solution pricing which will accommodate the specific use cases and roles involved. The solutions will provide functionality for a specific use case (business problem) at a price and licensing model tailored to that particular application. In a way, this trend is being paved by mobile applications today. What we are buying are very specific applications at relatively low prices - not a universal platform that can do everything and costs a lot. And this is likely to be the future of ECM pricing.

No comments:

Post a Comment