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Contrarian insight #12 -- *Always* true?

I have read the statement from Joel before about software being less than $3000 or greater than $100000 to make money.

I would submit, however, that this is not universally true.  Again, the magic answer for everything is that 'it depends'.

Our company, I would like to think, parallels Fog Creek in many regards, but definitely not all.  We have no outside investors, not a lot of advertising (depending on word of mouth), and no sales department (we have two MBA's that take in-bound calls for sales and technical support -- yes, they're MBA's, but the tech support deals heavy in market research)

Our software caters to market research departments, and we sell software in the range of $500 to $9000 roughly.  And we are increasing sales every year, with a high rate of upgrade with newer versions.

The reason is that these research departments are either consulting firms, or internal to large corporations.  They make a dollar for every penny they spend and more.

'It depends' on the audience your software caters to, as does so much in software.

I would submit that to Joel for consideration.

Walt
Wednesday, August 04, 2004

we create custom websites from $7,000 to $100,000. however all of them requires sales effort.


Wednesday, August 04, 2004

not *always*.  he was obviously making a generalisation of the industry as a whole.  sure, there's bound to be exceptions.

Kenny
Wednesday, August 04, 2004

I wouldn't even call it an exception.  I think the rule should be revised as a whole.

Joel can correct me if I'm wrong, but in his work at Juno and Microsoft, I'm sure he never sold anything in this range, but I wonder if he ever worked for a company with products in his forbidden zone.

Does he provide a back story to his opinion?

Walt
Wednesday, August 04, 2004

The point he is making is that you want to sell something that can be bought on the expense account, not have to go through procurement, which can mean you need an expensive sales force.

I know of a lot of software in the CALL market that goes at around $1,500 a seat (which for the average CALL lab means $20-$30,000). These are all marketed by full time salesmen, and so far they have done half-a-dozen presentations at my place of work and I've still not bitten.

Stephen Jones
Wednesday, August 04, 2004

It's probably not a question of being able to sell software in the "forbidden" range, it's probably the profitability of software sold in that range.  If a product is high priced, that implies low volume as well as a high cost of sales.  Thus, the profitabilty of software in that range may not meet Joel's requirements.

Fruit Pop
Wednesday, August 04, 2004

The point I'm trying to make it that we can sell a package for $5000, with no salespeople, and customers say "It's that cheap?" and buy on the spot.

Are we profitable?  Yes.  The company is taking all employees and families to Kauai for a week!

I don't believe you can just impose an arbitrary figure and say you can't be profitable with prices in that range.

It is better to define the customer type, and then define what the range of profitability is for that type.

Walt
Wednesday, August 04, 2004

Walt,

Did you notice that those are one-way tickets to Kauai?

Iwannahockaluggie
Wednesday, August 04, 2004

You wish.

We've been doing it every two years.

I already reserved my rental car: convertible.

Walt
Wednesday, August 04, 2004

-----"and customers say "It's that cheap?" and buy on the spot."-----

So you don't have to go through procurement; or your targetting small business owners. I think the original figure Joel gave was round about $5,000.

It's all to do with not having to make multiple presentations of your product to different levels in the decision chain in the company.

Stephen Jones
Wednesday, August 04, 2004

<Quote>I already reserved my rental car: convertible. </Quote>

I'm impressed!  BIG SPENDAAAAH!!!

Jealous
Wednesday, August 04, 2004

I think it has to do with the nature of your product.

I'm neither defending nor disproving Joel's point here, I don't know enough about it to have an informed opinion either way. All I know is the limit for buying stuff at Citibank was around $300 or $500 or something like this. Beyond that my manager had to get his manager's approval. This was during the 2001 post-crash, belt tightening months.

Joel's target audience is "everyone who develops software, and everyone who wants a website." Your target audience is marketing firms. So Joel gets lots of churches, not for profits, small business and Fortune 500's. You get lots of medium sized businesses, probably the size of Fog Creek and a bit bigger where purchasing hasn't been formalized the way it has in large corporations.

Just a thought.

www.MarkTAW.com
Wednesday, August 04, 2004

What's an example of a software product that costs over $100k?

Matt B
Wednesday, August 04, 2004

I wrote an app for monitoring space shuttle. We have priced it around $102K.

If you need a demo, let us know.

Jason
Wednesday, August 04, 2004

Well, how much does the demo cost?

Matt B
Wednesday, August 04, 2004

Interwoven Teamsite

Vignette Storyserver

How much does Oracle cost?

www.MarkTAW.com
Wednesday, August 04, 2004

I work on software that is sold into the financial market.  It sells for $18K/site (1-5 seats) annually.  We currently have 400+ customers and growing.  My feeling is that these prices are not limited to our market.  A lot of our customers are very small shops, and this is substantial price for them, but they have to have the software to be competitive. 

Fog bugz and City Desk are at least an order of magnitude less complex than this software.  The analysis code was written by a PH D. that I'm pretty sure is in the top 0.0001% of developers. 

Joel is targeting a much broader audience where there is enormous competition.  That is probably why he doesn't see higher margins, and even discounts their existence. 

We work in a market where there is 0 competition from free software, and our lowest price competitor comes in at around $5k/site/yr.  So we have an entire market that acts as a counter example. 

christopher (baus.net)
Wednesday, August 04, 2004

Many software packages sell for over $100K per site or per server.  Per-seat at that price is uncommon though.

T. Norman
Wednesday, August 04, 2004



Uh... within our company, no one even notices when we spend $1k on software.  It doesn't become an issue until we spend $5k or more.

From government contracting, they usually don't flinch until you get to $10k.  Then if you get above $25k, they require additional info to demonstrate that it's clearly required.

KC
Wednesday, August 04, 2004

That brings up another point. At Citi, Teamsite, Oracle, and Solaris were corporate standards, with licenses being handed out from the upper echelons. Clearly winning Citi as an account would be a major coup because it would be forced on everyone corporate wide (250,000 employees worldwide, and more divisions than I can keep track of).

Of course, there were places that had, say, Vignette Storyserver instead of Teamsite because they'd purchased it prior to the corporate decision to standardize, and I doubt they were forced to give up their license, but this period of slack is temporary.

Significantly below that level it can be expensed.

In between... I can't really think of much in between. Dreamweaver and Photoshop were popular, and purchased by enough people to be looked at by the central purchasing department, but not enough that we couldn't buy an alternative to them, which contrasts with, say, MS Office, which was pretty much dictated.

Things on opposite ends of the spectrum are handled differently. Something that can be expensed is different from something that's a departmental decision, is different from something that's a corporate decision.

And I believe those are the 3 tiers Joel is talking about.

www.MarkTAW.com
Wednesday, August 04, 2004

Last time I bought a Cadence license it was around one million per seat, and it's the most popular crhip design package out there. It's been some years though, maybe the price has come down.

Dennis Atkins
Wednesday, August 04, 2004

WinRunner and LoadRunner are testing packages. It is easy to get the price over $100k. Part of the pricing involves (or involved last time I was in on the meetings for it) the number of seats of the authoring part, how many servers it can run on, and how hard you want to hammer the servers.

Clientele is a CRM. Ran about $1800 per seat plus a lot for the server. The company that I worked in, which installed it, had somewhere near 80 seats licensed.

Peter
Thursday, August 05, 2004

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