Friday, September 02, 2005

Software Pricing 2

Following up my previous posts on Software Pricing and Value-Based Pricing, I had a useful conversation with a couple of people from Computer Associates (CA), which is one of the software vendors leading the move towards new models of software pricing and revenue. For several years CA has offered alternative (flexible) licensing arrangements for some of its main products, and is strongly committed to progressing the business model.

In recent years, CA has found many corporate customers interested in talking about output-based pricing - but fewer customers willing to put it into practice. While customers are very happy to share the downside risk with a software provider, they are rather less keen to share the upside risk. However, there have been some limited successes with output-based pricing and even value-based pricing. For example, for one mobile phone operator, the software license is geared to the number of subscribers. CA is eager to expand this kind of deal.

Clearly this kind of deal means that revenue is dependent upon a lot of factors that are outside the software provider's control (although this is no worse than for traditional forms of software licensing). Risk mitigation on both sides (supplier and consumer) typically results in hybrid deals, combining some elements of input-based or subscription pricing with some elements of output-based pricing, arranged in bands with defined max/min values.

Software services are composed with hardware and other services to produce solutions. The problem of reasoning about the pricing of services in complex composition/decomposition hierarchies is closely akin to the general service management problem - where SLA hierarchies also follow a complex and difficult algebra.

What most people are currently doing in service monitoring and management is largely bottom-up - paying attention to the behavior profiles and operational policies associated with single web services. This suffers from a number of problems. It is not scaleable (in terms of size or complexity), it is not accessible to non-technical managers, and it provides no visibility of the link to business value.

CA is therefore committed to providing integrated service management, with a comprehensive top-down view of the business process, and this is the thinking behind recent developments in CA WSDM. There is some functionality I'm not allowed to talk about yet, and I guess some of this will appear in time for CA World in November. Watch this space.

Meanwhile the CBDI Journal for September will contain a fuller report on service pricing, for subscribers only.

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