Page 1
MarketShare, Inc.35 Main Street // Suite 8
Wayland, MA 01778Tel: (508) 647-0330
www.softwarepricing.com
© 2008 MarketShare, Inc.
Pricing in a Crisis EconomyPricing in a Crisis EconomyKeep your head…
Stay out of trouble…
Jim Geisman, founder & principal
Webinar Sponsored by
Page 2
2© 2008 MarketShare, Inc.
Introduction
About About MarketShareMarketSharePricing software and systems since 1987Address client problems
Slow sales cyclesMoney left on tableChaotic / confusing pricingEntry into new markets / segments
Help clients meet objectivesImprove financial performanceStrengthen competitive positionFoundation for future growth
Page 3
3© 2008 MarketShare, Inc.
Introduction SaaS InnocenceSaaS Innocence
Page 4
4© 2008 MarketShare, Inc.
Introduction SaaS OpportunitySaaS Opportunity
Page 5
5© 2008 MarketShare, Inc.
Introduction SaaS OpportunitySaaS OpportunitySquash?
Page 6
6© 2008 MarketShare, Inc.
Introduction Good News: The Model WorksGood News: The Model Works
$-
$10
$20
$30
$40
$50
$60
$70
$80
$90
1 2 3 4 5 6 7 8 9 10 11 12 13
Number of Quarters (Since Q1 FY 2004 )
Rev
enue
($ M
)
0
50
100
150
200
250
300
350
400
450
Subs
crib
ers
(000
s)
Salesforce.com Subscriber Base and Revenue Build$175 M raised from capital markets
Page 7
7© 2008 MarketShare, Inc.
Introduction But ItBut It’’s a Balancing Acts a Balancing Act
Slow new customer growth now means less viral growth in future
Revenues
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
1 2 3 4 5
Number of Years
Rev
enue
($M
)
Slow viral growth (units and upgrades / options) lowers value of new customer
Revenues
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
1 2 3 4 5
Number of Years
Reve
nue
($M
)
Existing Customers Upgrade GrowthUnit Growth New Customers
Revenues
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
1 2 3 4 5
Number of Years
Rev
enue
($M
)
Page 8
8© 2008 MarketShare, Inc.
Introduction So Watch Your Step So Watch Your Step
Uncertainty will last 1-2 years (58%)>2 years (28%)
Impact of downturn neutral to slightly positive On SaaS industry overall (75%)For some vendors (58%)
• But others will feel pain (30%)Spend more on sales, marketing, BD
Find new partnersAdd featuresExpand existing channelRepackage product
No differences?Do what’s right – for your company
Page 9
9© 2008 MarketShare, Inc.
Introduction
TakeawaysTakeawaysExecute the basics
Attract new customersIncrease viral attractiveness
Don’t weaken yourselfDon’t underprice
Improve pricing executionMake sensible pricing decisions
Don't compete on priceThink before reacting to competition
Page 10
10© 2008 MarketShare, Inc.
TopicsTopicsDon’t weaken yourself
Deep price cutsToo few packagesGenerous discountsIllogical discount structure
Improve pricing executionMake sensible pricing decisions
Don't compete on priceThink before reacting to competition
Page 11
11© 2008 MarketShare, Inc.
Don’t Weaken Yourself Deep Price CutsDeep Price Cuts
Additional Volume Required to Maintain Revenues
0%
50%
100%
150%
200%
250%
300%
350%
400%
0% 25% 50% 75% 100%
Price Cut %
Add
ition
al V
olum
e R
equi
red
%
Page 12
12© 2008 MarketShare, Inc.
Don’t Weaken Yourself Too Few PackagesToo Few Packages
Deliverables
Mon
ey
Get more Pay less
Page 13
13© 2008 MarketShare, Inc.
Too Few Packages Offer Packaging AlternativesOffer Packaging Alternatives
Get morePay more
Pay less Get less
Deliverables
Mon
ey
Get more Pay less
Page 14
14© 2008 MarketShare, Inc.
Don’t Weaken Yourself Generous DiscountsGenerous Discounts
# Units11050100250
1000
$ Revenues$2,00010,00025,00030,00050,000
$100,000
$/Unit20001000500300200100
95% discount
Page 15
15© 2008 MarketShare, Inc.
Troublesome Discounts Illogical Discount StructureIllogical Discount Structure
Tiered Discount Revenues
$-
$50,000
$100,000
$150,000
$200,000
$250,000
0 250 500 750 1000 1250 1500
Unit Volume
Tota
l Pric
eAverage
Price
Tiered Discount Schedule
$-
$500
$1,000
$1,500
$2,000
$2,500
0 100 200 300 400 500
Unit Volume
Ave
rage
Pric
e pe
r Uni
t
Discontinuous Revenues
Page 16
16© 2008 MarketShare, Inc.
Discount Schedule Improve Structure & LevelsImprove Structure & Levels
# Units1 - 9
10 - 4950 - 99
100 - 249250 - 999
1000 +
$ Payment-0-
18,00082,000
148,000329,000
1,110,000
+ $/Unit20001600130012001050800
Tax-Table Discount Schedule
Page 17
17© 2008 MarketShare, Inc.
TopicsTopicsDon’t weaken yourself
Don’t underprice
Improve pricing executionAlign pricing metric with valueUse correct comparablesPackage for valueDon’t confuse customers
Don't compete on priceThink before reacting to competition
Page 18
18© 2008 MarketShare, Inc.
Improve Pricing Execution Align Metric With Value DriverAlign Metric With Value Driverper loan +++per patient +++per user ++per user ++per user +++per property +++Per user +per student +++per user ++per customer +++per user +++per user +++per patient +++per employee +++per user +per user ++per claim +++per bill +++Per gallon of fuel +++per patient +++per shareholder +++per user +++per employee +++per user +per ad +++per property +++per user +per reservation +++per employee +++per member ++per user +per user +per user +
Page 19
19© 2008 MarketShare, Inc.
Improve Pricing Execution Align Metric With Value DriverAlign Metric With Value Driverper loan +++per patient +++per user ++per user ++per user +++per property +++Per user +per student +++per user ++per customer +++per user +++per user +++per patient +++per employee +++per user +per user ++per claim +++per bill +++Per gallon of fuel +++per patient +++per shareholder +++per user +++per employee +++per user +per ad +++per property +++per user +per reservation +++per employee +++per member ++per user +per user +per user +
+++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++
Vertical marketsAligned with customer’s business
per adper billper claimper customerper employeeper employeeper employeePer gallon of fuelper loanper patientper patientper patientper propertyper propertyper reservationper shareholderper studentper memberper userper userper userper userper userper userper userper userper userper userPer userper userper userper userper user
Page 20
20© 2008 MarketShare, Inc.
Improve Pricing Execution Align Metric With Value DriverAlign Metric With Value Driverper loan +++per patient +++per user ++per user ++per user +++per property +++Per user +per student +++per user ++per customer +++per user +++per user +++per patient +++per employee +++per user +per user ++per claim +++per bill +++Per gallon of fuel +++per patient +++per shareholder +++per user +++per employee +++per user +per ad +++per property +++per user +per reservation +++per employee +++per member ++per user +per user +per user +
Horizontal and vertical marketsSometimes aligned
+++++++++++++++++++++++++++++++++++++++++++++++++++++
+++++++++++++++++++++++++++
Vertical marketsAligned with customer’s business
per adper billper claimper customerper employeeper employeeper employeePer gallon of fuelper loanper patientper patientper patientper propertyper propertyper reservationper shareholderper studentper memberper userper userper userper userper userper userper userper userper userper userPer userper userper userper userper user
Page 21
21© 2008 MarketShare, Inc.
Value-Aligned Pricing Metric An ExampleAn Example
Per-Connection Pricing + Type of Connector
Page 22
22© 2008 MarketShare, Inc.
Value-Aligned Pricing Metric Selection GuidelinesSelection Guidelines
Aligned with customer’s businessPath to revenueFinancial-enhancing usageRevenue-generating users
Scales with value deliveredCan be estimated for budgeting
Accuracy less importantShould be “wired” into application
License servers, keysTransaction counters
Page 23
23© 2008 MarketShare, Inc.
Improve Pricing Execution Use Correct ComparablesUse Correct Comparables
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
0 4 8 12 16 20
# Quarters
Cum
e Pa
ymen
ts ($
K)
Perpetual Software Fee
Perp + M&S Fee
Page 24
24© 2008 MarketShare, Inc.
Improve Pricing Execution Use Correct ComparablesUse Correct Comparables
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
0 4 8 12 16 20
# Quarters
Cum
e Pa
ymen
ts ($
K)
Perpetual Software Fee
Perp + M&S Fee
SaaS Breakeven
Page 25
25© 2008 MarketShare, Inc.
Improve Pricing Execution Use Correct ComparablesUse Correct Comparables
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
0 4 8 12 16 20
# Quarters
Cum
e Pa
ymen
ts ($
K)
SaaS Software PLUS Hosting
Breakeven
Perpetual Software Fee
Perp + M&S Fee
SaaS Software-OnlyBreakeven
Page 26
26© 2008 MarketShare, Inc.
Improve Pricing Execution Package for ValuePackage for Value
Take Away
How little needed to beat price?
Build Up
How much needed to justify price?
Page 27
27© 2008 MarketShare, Inc.
Improve Pricing Execution DonDon’’t Confuse Customerst Confuse Customers
Page 28
28© 2008 MarketShare, Inc.
TopicsTopicsDon’t weaken yourself
Don’t underprice
Improve pricing executionMake sensible pricing decisions
Don't compete on priceFind your nicheBe flexibleDon’t get trampled
Page 29
29© 2008 MarketShare, Inc.
New Product Elements Find Your NicheFind Your Niche
Security
Integration
Flexibility
Low upfront costPay as you useMonthly paymentWeb-delivered application No / low need for internal IT
SaaS Benefits
SaaS Drawbacks
No IT budgetCustomer Types to Target
Price sensitive
Rapid deployment
Legacy apps
Risk averse
Need custom solution
Uncertain usageCashflow sensitive
Customer Types to Avoid
Page 30
30© 2008 MarketShare, Inc.
Don’t Compete on Price Be Flexible with PaymentsBe Flexible with Payments
Up-front vs Ongoing Cume Payments
0
20
40
60
80
100
120
0 5 10 15 20 25 30
Ongoing Payment
Up-
fron
t Pay
men
t
DCF of Upfront + 5 ongoing payments @10% Discount Rate
Pay less upfront
Page 31
31© 2008 MarketShare, Inc.
Don’t Compete on Price Be Flexible with PaymentsBe Flexible with Payments
Up-front vs Ongoing Cume Payments
0
20
40
60
80
100
120
0 5 10 15 20 25 30
Ongoing Payment
Up-
fron
t Pay
men
t
DCF of Upfront + 5 ongoing payments @10% Discount Rate
Pay less upfront
Page 32
32© 2008 MarketShare, Inc.
Don’t Compete on Price Be Flexible with PaymentsBe Flexible with Payments
Up-front vs Ongoing Cume Payments
0
20
40
60
80
100
120
0 5 10 15 20 25 30
Ongoing Payment
Up-
fron
t Pay
men
t
90
100
110
120
130
140
150
Cum
e Pa
ymen
ts
DCF of Upfront + 5 ongoing payments @10% Discount Rate
Pay less upfront
Pay moreoverall
Page 33
33© 2008 MarketShare, Inc.
Don’t Compete on Price Avoid Being TrampledAvoid Being Trampled
Page 34
34© 2008 MarketShare, Inc.
Avoid Being Trampled NetSuiteNetSuite Financials*Financials*
Revenues Up 44% ($40 vs $28M)
Gross marginDown 4 points (66% vs 70%)
• 6% declineSales & Marketing
Up $6M (40% growth)Still 50% of revenues
Operating CashflowMore negative (-$6M vs. -$1.8M)
* Q3 2008 vs Q3 2007
Page 35
35© 2008 MarketShare, Inc.
WrapWrap--UpUpExecute the basics
Attract new customersIncrease viral attractiveness
Don’t weaken yourselfDon’t underprice
Improve pricing executionMake sensible pricing decisions
Don't compete on priceThink before reacting to competition
Page 36
36© 2008 MarketShare, Inc.
WrapWrap--UpUp Final ThoughtsFinal Thoughts
Align price with value
Use packaging to add value
Link payment timing to value delivery
Test prices, packages, offerings
Watch billings and cashflow
Page 37
37© 2008 MarketShare, Inc.
WrapWrap--UpUp Are Things Really This Bad?Are Things Really This Bad?
SaaS IndexSW Index
Page 38
38© 2008 MarketShare, Inc.
WrapWrap--UpUp Maybe Not!Maybe Not!
http://tinyurl.com/no-decline
Page 39
39© 2008 MarketShare, Inc.
Thanks!Thanks!
Jim Geisman
[email protected]
508 – 647 – 0330