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National Technology & Business Conference

Emerging Trends in Pricing & ROI. Jeff Nolan Teqlo (USA). National Technology & Business Conference. 29 November 2006. About me. CEO of Silicon Valley startup Teqlo, Inc. DIY application technology SMB focused SaaS dependent Previously with SAP Attack Oracle Competitive Strategy Team

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National Technology & Business Conference

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  1. Emerging Trends in Pricing & ROI Jeff Nolan Teqlo (USA) National Technology & Business Conference 29 November 2006

  2. About me • CEO of Silicon Valley startup Teqlo, Inc. • DIY application technology • SMB focused • SaaS dependent • Previously with SAP • Attack Oracle Competitive Strategy Team • 8 years with SAP Ventures • SAP’s venture capital fund National Technology & Business Conference 29 November 2006

  3. Pricing Strategy • 2 purposes to pricing • Accommodate 100% of demand in your shooting range • Maximize unit economics • Additional benefits of perfect pricing • Competitive weapon • Better forecasting as a result of less discounting • Valuation of the business improves National Technology & Business Conference 29 November 2006

  4. Put another way… • Lose no deals because of price • Leave no money on the table • Force competitive price moves • Happy investors National Technology & Business Conference 29 November 2006

  5. Major Trends in Pricing • Move from licenses to subscriptions • Not as prevalent as some would suggest but significant nonetheless • Moves software from Capex to operating expense on the customer side • Non-traditional models • Free software • Open source or ad supported • Diversification of revenue streams • Convergence of enterprise and consumer markets National Technology & Business Conference 29 November 2006

  6. Old Software • Ideal • List price based on combination of server and client licenses • 18-22% maintenance and support • Reality • Every deal negotiated • Deep discounting • Back end loading of the quarter • Maintenance ends up being the dog instead of the tail • Oracle’s acquisitions value companies at 3.5-4x as a whole but 6-8x for maintenance dollars National Technology & Business Conference 29 November 2006

  7. New Software Pricing Rules • Multiple pricing strategies • SaaS : • Monthly subscription based on number of users and/or employee records • Pay as you go, no upfront costs • On Premise • Deeply discounted license • Premium maintenance up to 25% • The appliance emerges as prime delivery model • Freemium • Basic service is free • Premium service components at additional charge National Technology & Business Conference 29 November 2006

  8. “Safe Passage” Pricing • Competitive switching opportunities • 75-100% of the competitive licensing cost is rebated • Premium maintenance on the adjusted base • Applicable in markets that are mature and competitively stable • 3 Laws of Siege • Fatigue • Starve • Demoralize National Technology & Business Conference 29 November 2006

  9. Open Source • OSS used to be the same as free software • Commercially unviable • New rules force attribution and enable premium pricing options • Core product engine is downloadable • Premium add-ons (e.g. Exchange integration) are extra • Software cannot be combined with another product and converted into a commercial offering • License kicks in under specific conditions National Technology & Business Conference 29 November 2006

  10. SaaS Pricing • Monthly subscription charge • User based • Salesforce, $50 per month for 5 users • Intuit Quickbase: $250 per month • Joyent Connector (messaging): $15 per month • Feedburner: $6.95 per month • Backpack: $15 per month • Employee based • Workday: $x per employee record • Basic support, web only • No customizations but that is changing National Technology & Business Conference 29 November 2006

  11. SaaS Pricing • Premium pricing options • Telephone support • E-learning and consulting are extra • Appexchange is a platform play and seeks to grab more wallet share from customers by introducing partner products • This option is highly attractiver to 100-250 employee firms that have no IT capability and are comfortable hosting data in the cloud • Have little ambition for custom software National Technology & Business Conference 29 November 2006

  12. On Premise Ownership • Not really ownership but it feels that way • For 500 users and up this option does provide stronger ROI • In spite of implementation risks, integration risks, project scope risks • Assumes moderately frequent upgrades • Assumes 10 year replacement cycle • 2,500 user organizations behave similarly but at much larger scale National Technology & Business Conference 29 November 2006

  13. Hybrids • Even large organizations see SaaS as an attractive option for enabling subsidiaries and remote locations • In even the largest organizations it is financially beneficial to have SaaS when • 25% of the employees are remote • Operating in multiple geographies • But pricing and deployment options are apples and oranges National Technology & Business Conference 29 November 2006

  14. The “Departmental Sell” • Many companies believe they can circumvent IT by going directly to users • Requires a modest monthly charge • Must be hosted • At some point, if successful, the CIO realizes that there is a lot of XYZ being used and forces a consolidation rollup of licenses • Often wants to bring it in house National Technology & Business Conference 29 November 2006

  15. Appliances • Preconfigured software on commodity hardware • Socialtext’s wiki appliance • Turnkey, plug it in and give it an IP address • $50,000 for unlimited use • Support is extra… • Sun is doing this with their new storage offerings • SAP is doing this for BIA • Turnkey BI appliance preintegrated with SAP and non-SAP systems • Google Search Appliance • Oracle and SFdC integration out of the box National Technology & Business Conference 29 November 2006

  16. Big Enterprise Consumer M - SMB S - SMB Consolidation License Premium/Service Premium Free’ium Multiple options Free Service Premium Premium ++ Premium / ProServ Free Teqlos Expanded Teqlet Library Integration Options Compliance Limited Teqlets No Advertising Security / LDAP On-Premise Deploy Limited Storage Company Skins Proprietary Teqlets SAP/Oracle Integration Inline Advertising @yourdomain.com Exchange Messaging Expanded Support Flexible Workflow Compliance Auditing Site Licensing BizTalk Integration SNMP Support Premium Service More Teqlets Additional Storage Limited Advertising Personalization National Technology & Business Conference 29 November 2006

  17. Advertising • I don’t get this… • Requires high CPMs to make money • Dedicated ad sales business unit for sponsorships • Google AdSense isn’t going to pay the bills • However… Federated Media is interesting National Technology & Business Conference 29 November 2006

  18. Hosting Economics National Technology & Business Conference 29 November 2006

  19. Infrastructure Services • Emergence of infrastructure in the cloud is a major trend • Amazon S3 • Amazon Fulfillment Services • .50 cents + .45 cents per lb. per item • .45 cents per cubic foot per month for storage • Joyent’s storage service • 100gb of storage • 5gb network bandwidth per month • $199 a year • Sun storage arrays and CPU farms National Technology & Business Conference 29 November 2006

  20. Thank you National Technology & Business Conference 29 November 2006

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