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charge less. Just how much depends on their chosen amortization time: typically somewhere between 2.5 to 5 years and also where they set their interest rate. Those that see subscription pricing as a convenience for their customers and not part of their strategic plans tend to charge the higher percentage fees of 60% or greater. Typically these also follow a prestige pricing model.
OSS/BSS are operational costs to Service Providers who must assess their value based on dual considerations of size of network supported and value of each customer enabled. Traditionally SPs compute OSS value based on network size and BSS based on number of customers supported (indeed, this is a good working definition of the difference between OSS and BSS.) With today’s products blending OSS and BSS with common infrastructures and extensive automated interworking, first allocating separated costs between increased efficiency and expanded opportunity, and then calculating the return on value by SPs, becomes more difficult - results are muddy or indeterminate.
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The accepted approach for setting prices today is ...a “strategic pricing-center”. |
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software manufactures and SIs representing them. In the past these partnerships were dominated by the SIs dictating terms. However, with the “new” realization of Service Providers that the return on value of their past deals with SIs is not occurring, SIs must discover new value for providers and fresh reasons for them to buy indirect. As manpower prices have been driven to extreme lows in the 2nd world-driven, manpower-price-wars, the relative value of software sales increases for SIs and with it the power of software creators increases in making OEM deals with SIs.
Lastly, investor valuation of startup companies has come to depend mostly on gross revenue amounts and secondarily on current revenue per employee. When total revenue is more important than marginal return, that is, the value of the deal is more important than the return on the deal, it creates within the
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Market conditions are also important to creating a strategy to set price points. The dominant vendors are deep into creation of sustainable value through cost leadership; they have already recouped high initial development costs and are now pricing based on marginal costs. Prices are also depressed by the increasing acceptance of low cost “open source” products by both SIs and SPs.
Systems Integrators, by differentiating themselves with specifically targeted expertise and providing one-stop aggregate product shopping, have become the dominant seller in the market, exceeding the direct sales of all but the biggest conglomerate OSS/BSS vendors. Closer partnerships have developed between
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software companies internal downward pressures on pricing.
Setting a Strategic Price
The accepted approach for setting prices today is to develop and cultivate a “strategic pricing-center” inside the organization supported by analysts with integrity. Many different ways of establishing price and discounts are identified, named, and gamed [such as Random discounting, reference-based pricing, prestige pricing, penetration pricing, and Value-based pricing]. It is not that one method is better than another, but that one fits a specific market condition and the progressive point in the lifecycle of the product.
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