More Search Pricing Thoughts
March 9, 2009
I track the floor license fees for a number of search and content processing products. A “floor” price is one below which the vendor will not sell his / her product. A freeware author sets a floor price of zero. Any revenue that accrues must come from donations, services, or maybe a custom programming job. The big enterprise search vendors face brutal development and marketing costs. Not surprisingly an organization finds that spending one million dollars in the first 12 months of a search system’s deployment is not unusual. I have been involved in projects where the price tag soars millions above the $1 million floor. A ceiling price, on the other hand, is the price above which a vendor will not go. In search, like other complex enterprise systems, the “total” costs (directs, indirects, capital and infrastructure costs, interest, and an “opportunity” cost for delays and downtime) are not calculated. In actual practice, the ceiling price for search does not exist. I conducted an analysis of Google’s pricing for its appliances, and I found some interesting points. Those are not the subject of this post, but let me know if you want to buy my report on this subject.
When I was completing Beyond Search for the Gilbane Group last year, I spoke with a vendor in the UK who told me, “We don’t have a price.” I objected because I can calculate a “price” by dividing revenues by the number of active clients. The company insisted, “We don’t have a price.”
I had a brief conversation with a company last week that asserted that its new search procurement was “fully funded”. I don’t think the speaker knew the potential for cost issues that lurk within search and content processing applications. Articles like this one “Microsoft Promises to Slash Cost of High-End Search” here signal to me an impending search price war.
What happens if the search software is free, a question of growing importance with open source software getting increased attention?
- Free does not mean no cost
- Changing pricing rules willy nilly can turn off prospects and partners
- Pitching a mission critical and complex product as having little or no cost can starve other vendors of sales.
Microsoft’s approach to Fast ESP may e a greater market factor than I first thought.
Stephen Arnold, March 9, 2009
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2 Responses to “More Search Pricing Thoughts”
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Could you please elaborate on “Microsoft’s approach to Fast ESP may e a greater market factor than I first thought.”?
While “Free does not mean no cost” is true, “Free does not mean no cost” *could* mean *lower* cost. If the floor price for FAST is $300K,/year for example, think about what you can build *on top* of a free OSS solution. And there are no annual or per query or per index size limit or repeating license fees.
Are the floor prices available in a specific report of yours or elsewhere on arnoldit.com?
Ah, Otis,
No.
Stephen Arnold, March 10, 2009