Pricing

Paid Queue Jumping, San Francisco Style

ianwaring Future Trends, Internet, Mobiles, Pricing, Selling, Software Leave a comment

Keep Calm and Queue Here Sign

There’s a fair amount of controversy about two mobile applications in San Francisco right now; MonkeyParking and ReservationHop. Both offer a twist on selling a place in a queue to a limited resource:

  • In an environment where it can sometimes take 45 minutes to find a car parking place, MonkeyParking enables someone currently occupying a space to sell this to another driver in the same proximity.
  • Likewise, where Restaurants having waiting lists that may extend to over a month, ReservationHop prebooks tables and sells these to customers who want to make a late booking

Transport authorities are objecting to the scalping of public parking spaces, and likewise there is concern about unsold restaurant bookings causing inefficiences when virtual diners don’t turn into real ones.

Besides the market for ticket touts, i’m also reminded that some customers will pay a hobo (tramp) to reserve their place in queues for new iPhones. I also recall Sir John Harvey-Jones, ex CEO of ICI plc, who once vented his frustration at the management of Morgan Cars, who maintained a multi-year waiting list for cars rolling off their production line. Customers would routinely sell their positions at greater than the cost of a new car, a practice resulting in much shrugging of shoulders at a practice that they felt wasn’t really cricket – but which they allowed to carry on regardless.

I guess the answer is to charge a premium for a standard car, and to discount personal customisations ordered up front. Customising something normally increases the value to the originally intended recipient, while decreasing the value to everyone else. Anyone who doubts that hasn’t looked at the value an iPad sale achieves on eBay between stock machines and ones engraved with the owners name.

But, same old. It’s happened from the dawn of time, and rarity of any resource (and timely access to same) normally attracts some value that scalpers can attribute a price to. The only thing I find distasteful is the name coined for mobile apps that enhance this process on the West Coast of the USA right now – that of “Jerkware”. Hopefully we can come up with a more appropriate name going forward.

11 steps to initiate a business spectacular – true story

ianwaring Management, Marketing, Microsoft, Pricing, Selling, Training 1 Comment

Nuclear Bomb Mushroom

I got asked today how we grew the Microsoft Business at (then) Distributor Metrologie from £1m/month to £5m/month, at the same time doubling the margin from 1% to 2% in the thick of a price war. The sequence of events were as follows:

  1. Metrologie had the previous year bought Olivetti Software Distribution, and had moved its staff and logistics into the company’s High Wycombe base. I got asked to take over the Management of the Microsoft Business after the previous manager had left the company, and the business was bobbing along at £1m/month at 1% margins. Largest customer at the time was Dixons Stores Group, who were tracking at £600K sales per month at that stage.
  2. I was given the one purchasing person to build into a Product Manager, and one buyer. There was an existing licensing team in place.
  3. The bit I wasn’t appraised of was that the Directors had been told that the company was to be subject to a Productivity Improvement Plan, at the same time the vendor was looking to rationalise it’s UK Distributor numbers from 5 to 4. This is code for a prewarning that the expected casualty was…. us.
  4. I talked to 5 resellers and asked what issues they had dealing with any of the Microsoft distributors. The main issue was staff turnover (3 months telesales service typical!), lack of consistent/available licensing expertise and a minefield of pricing mistakes that lost everyone money.
  5. Our small team elected to use some of our Microsoft funds to get as many front line staff as possible Microsoft Sales certified. I wasn’t allowed to take anyone off the phones during the working week, but managed to get 12 people in over a two day weekend to go from zero to passing their accreditation exam. They were willing to get that badge to get them better future career prospects. A few weeks later we trained another classful on the same basis; we ended up with more Sales accredited salespeople than all the other distributors at the time.
  6. With that, when someone called in to order PCs or Servers, they were routinely asked if they wanted software with them – and found (to their delight) that they had an authoritative expert already on the line who handled the order, without surprises, first time.
  7. If you’re in a price war, you focus on two things; one is that you isolate who your key customers are, and secondly you profile the business to see which are the key products.
  8. For the key growth potential customers, we invested our Microsoft co-op funds in helping them do demand creation work; with that, they had a choice of landing an extra 10% margin stream new business dealing with us, or could get 1% lower prices from a distributor willing to sell at cost. No contest, as long as our pricing was there or thereabouts.
  9. The key benchmark products were Microsoft Windows and Microsoft Office Professional. Whenever deciding who to trade with, the first phone call was to benchmark the prices of those two part numbers, or slight variations of the same products. However, no-one watched the surrounding, less common products. So, we priced Windows and Office very tightly, but increased the selling prices by 2-3% on the less common products. The default selling price for a specific size of reseller (which mapped into which sales team looked after their account) was put on the trading platform to ensure consistency.
  10. Hand offs to the licensing team, if the business landed, were double-bubbled back to the field/internal salesperson team handling each account – so any more complex queries were handed off, handled professionally, priced and transacted without errors.
  11. We put all the measures in place, tracking the number of customers buying Microsoft software from us 1 month in 3, 2 months in 3 and every month. We routinely incented each sales team to increase the purchase frequencies in their account base on call out days, with programs that were well supported and fun in the office.

The business kept on stepping up. Still a few challenges; we at least twice got reverse ram raids, emptying returned stock back into our warehouse on day 30 of a 31 day month, making a sudden need for sales on the last trading day a bit of a white knuckle ride to offset the likely write down credit (until Microsoft could in turn return the cost to us). The same customer had, at the time, a habit of deciding not to pay it’s suppliers at month end at the end of key trading months, which is not a good thing when you’re making 1% margins assuming they’d pay you to terms.

One of the side effects of the Distribution business is that margins are thin, but volume grows aggressively – at least until you end up with a very small number of really big distributors left standing. A bit like getting wood shavings from wood on a lathe – you want just enough to peel off and the lathe turning faster and faster – but shy away from trying to be too greedy, digging the chisel in deeper and potentially seizing up the lathe.

With a business growing 40%+ per year and margins in the 1-2% range, you can’t fund the growth from retained profits. You just have to keep going back to the stock market every year, demonstrating growth that makes you look like one of the potential “last men standing”, and get another cash infusion to last until next year. And so it goes on, with the smaller distributors gradually falling away.

With the growth from £1m/month to £5m/month in 4 months – much less than the time to seek extra funds to feed the cash position to support the growth – the business started to overtrade. Vendors were very strict on terms, so it became a full time job juggling cash to keep the business flowing. Fortunately, we had magnificent credit and finance teams who, working with our resellers, allowed us the room to keep the business rolling.

With that, we were called into a meeting with the vendor to be told that we were losing the Microsoft Business, despite the big progress we’d made. I got headhunted for a role at Demon Internet, and Tracy (my Product Manager of 4 months experience) got headhunted to become Marketing Manager at a London Reseller. I stayed an extra month to complete our appeal to the vendor, but left at the end of June.

About 2 weeks into my new job, I got a call from my ex-boss to say the company’s appeal had been successful at European level, and that their Distribution Contract with the vendor was to continue. A great end to that story. The company later merged with one of the other distributors, and a cheque for £1000 arrived in the post at home for payment of stock options i’d been awarded in my last months there.

So, the basics are simple, as are the things you need to focus on if you’re ever in a price war (i’ve covered the basics in two previous blog posts, but the more advanced things are something i’d need to customise for any specific engagement). But talking to the customer, and working back to the issues delivering a good and friction free experience to them, is a great way to get things fixed. It has demonstrably worked for me every time – so far!

Sometimes a picture is “How on earth did you do that”?

ianwaring Amazon, Cloud, DEC, Enterprise IT, IBM, Open Source, Pricing, Purchasing, Software Leave a comment

IBM3270ALLIN1

People often remember a startling or surprising first impression. Riverdance when they first appeared during the voting interval during Eurovision 1994. 19-year old Everton substitute Wayne Rooney being put on the pitch against a season-long unbeaten Arsenal side, and scoring. A young David Beckham doing likewise against Wimbledon from the half way line. Or Doug Flutie, Quarterback for Boston College, throwing the winning touchdown in a Rose Bowl final from an incredible distance with no time left on the clock. There is even a road in Boston called “Flutie Pass” named in memory of that sensational hail mary throw.

There are always lots of pressures on IT Managers and their staff, with tightening budgets, constrained resources and a precious shortage of time. We used to have a task to try and minimise the friction these folks had in buying Enterprise IT products and services from us or our reseller channels. A salesperson or vendor was normally the last person they wanted to have a dependency on for basic, routine “stuff”, especially for items they should be able to work out for themselves. At least if given the right information in lucid form, concise and free of surprises – immediately available at their fingertips.

The picture was one of the ones we put in the DECdirect Software Catalogue. It shows an IBM 3278 terminal, hooked up to an IBM Mainframe, with Digital’s VAX based ALL-IN-1 Office Automation Suite running on it. At the time, this was a startling revelation; the usual method for joining an IBM system to a DEC one at the time was to make the DEC machine look like a remotely connected IBM 2780 card reader. The two double page spreads following that picture showed how to piece this, and other forms of connections to IBM mainframes, together.

The DECdirect Software catalogue had an aim of being able to spit out all the configuration rules, needed part numbers and matching purchase prices with a minimal, simple and concise read. Our target for our channel salesforce(s) was to enable them to extract a correct part number and price for any of our 550 products – across between 20-48 different pricing tiers each – within their normal attention span. Which we assumed was 30 seconds. Given appropriate focus, Predictability, Consistency and the removal of potential surprises can be designed in.

In the event, that business (for which I was the first employee in, working alongside 8 shared telesellers and 2 tech support staff) went 0-$100m in 18 months, with over 90% of the order volume coming in directly from customers, correctly priced at source. That got me a 2-level promotion and running the UK Software Products Business, 16 staff and the country software P&L as a result.

One of my colleagues in DEC Finland did a similar document for hardware options, entitled “Golden Eggs“. Everything in one place, with all the connections on the back of each system nicely documented, and any constraints right in front of you. A work of great beauty, and still maintained to this day for a wide range of other systems and options. The nearest i’ve seen more recently are sample architecture diagrams published by Amazon Web Services – though the basics for IT Managers seeing AWS (or other public cloud vendors offerings) for the first time are not yet apparent to me.

Things in the Enterprise IT world are still unnecessarily complicated, and the ability to stand in the end users shoes for a limited time bears real fruits. I’ve repeated that in several places before and since then with pretty spectacular results; it’s typically only a handful of things to do well in order to liberate end users, and to make resellers and other supply channels insanely productive. All focus then directed on keeping customers happy and their objectives delivered on time, and more often that not, under budget.

One of my friends (who works at senior level in Central Government) lamented to me today that “The (traditional vendor) big players are all trying to convince the world of their cloudy goodness, unfortunately using their existing big contract corporate teams who could not sell life to a dying man”.

I’m sure some of the Public Cloud vendors would be more than capable to arm people like him appropriately. I’d love to help a market leading one do it.

Footnote: I did a previous post on what Vendors, Distributors and Resellers want here.

Officially Certified: AWS Business Professional

ianwaring Amazon, Cloud, Courses, Digital Ocean, Enterprise IT, Future Trends, MySQL, Open Source, Pricing, Rackspace, Tableau, Training Leave a comment

AWS Business Professional Certification

That’s added another badge, albeit the primary reason was to understand AWS’s products and services in order to suss how to build volumes via resellers for them – just in case I can get the opportunity to be asked how i’d do it. However, looking over the fence at some of the technical accreditation exams, I appear to know around half of the answers there already – but need to do those properly and take notes before attempting those.

(One of my old party tricks used to be that I could make it past the entrance exam required for entry into technical streams at Linux related conferences – a rare thing for a senior manager running large Software Business Operations or Product Marketing teams. Being an ex programmer who occasionally fiddles under the bonnet on modern development tools is a useful thing – not least to feed an ability to be able to spot bullshit from quite a distance).

The only AWS module I had any difficulty with was the pricing. One of the things most managers value is simplicity and predictability, but a lot of the pricing of core services have pricing dependencies where you need to know data sizes, I/O rates or the way your demand goes through peaks and troughs in order to arrive at an approximate monthly price. While most of the case studies amply demonstrate that you do make significant savings compared to running workloads on your own in-house infrastructure, I guess typical values for common use cases may be useful. For example, if i’m running a SAP installation of specific data and access dimensions, what operationally are typically running costs – without needing to insert probes all over a running example to estimate it using the provided calculator?

I’d come back from a 7am gym session fairly tired and made the mistake of stepping through the pricing slides without making copious notes. I duly did all that module again and did things properly the next time around – and passed it to complete my certification.

The lego bricks you snap together to design an application infrastructure are simple in principle, loosely connected and what Amazon have built is very impressive. The only thing not provided out of the box is the sort of simple developer bundle of an EC2 instance, some S3 and MySQL based EBD, plus some open source AMIs preconfigured to run WordPress, Joomla, Node.js, LAMP or similar – with a simple weekly automatic backup. That’s what Digital Ocean provide for a virtual machine instance, with specific storage and high Internet Transfer Out limits for a fixed price/month. In the case of the WordPress network on which my customers and this blog runs, that’s a 2-CPU server instance, 40GB of disk space and 4TB/month data traffic for $20/month all in. That sort of simplicity is why many startup developers have done an exit stage left from Rackspace and their ilk, and moved to Digital Ocean in their thousands; it’s predictable and good enough as an experimental sandpit.

The ceiling at AWS is much higher when the application slips into production – which is probably reason enough to put the development work there in the first place.

I have deployed an Amazon Workspace to complete my 12 years of Nutrition Data Analytics work using the Windows-only Tableau Desktop Professional – in an environment where I have no Windows PCs available to me. Just used it on my MacBook Air and on my iPad Mini to good effect. That will cost be just north of £21 ($35) for the month.

I think there’s a lot that can be done to accelerate adoption rates of AWS services in Enterprise IT shops, both in terms of direct engagement and with channels to market properly engaged. My real challenge is getting air time with anyone to show them how – and in the interim, getting some examples ready in case I can make it in to do so.

That said, I recommend the AWS training to anyone. There is some training made available the other side of applying to be a member of the Amazon Partner Network, but there are equally some great technical courses that anyone can take online. See http://aws.amazon.com/training/ for further details.

Customer, Customer, Customer…

ianwaring Amazon, DEC, Enterprise IT, Future Trends, HP, IBM, Linux, Open Source, Pricing, Rackspace, Sun Leave a comment

Jeff Bezos QuoteI’ve been internalising some of the Leadership principles that Amazon expect to see in every employee, as documented here. All of these explain a lot about Amazon’s worldview, but even the very first one is quite a unique in the IT industry. It probably serves a lesson that most other IT vendors should be more fixated on than I usually experience.

In times when I looked after two Enterprise Systems vendors, it was a never ending source of amusement that no marketing plan would be considered complete without at least one quarterly “competitive attack” campaign. Typically, HP, IBM and Sun (as was, Oracle these days) would expect to fund at least one campaign that aimed squarely into the base of customers of the other vendors (and the reseller channels that served them), typically pushing superior speeds and feeds. Usually selling their own proprietary, margin rich servers and storage to their own base, while tossing low margin x86 servers running Linux to try and unseat proprietary products of the other vendors. I don’t recall a single one working, nor one customer that switched as a result of these efforts.

One thing that DEC used to do well was, when a member of staff from a competitor moved to a job inside the company, to make it a capital offence for anyone to try and seek inside knowledge from that person. The corporate edict was to rely on publicly available data only, and typically to sell on your own strengths. The final piece being to ensure you satisfied your existing customers before ever trying to chase new ones.

Microsoft running “Scroogled” campaigns are a symptom (while Steve Ballmer was in charge) of losing their focus. I met Bill Gates in 1983, and he was a walking encyclopedia of what worked well – and not so well – in competitive PC software products of the day. He could keep going for 20 minutes describing the decision making process of going for a two-button mouse for Windows, and the various traps other vendors had with one or three button equivalents. At the time, it followed through into Microsoft’s internal sales briefing material – sold on their own strengths, and acknowledging competitors with a very balanced commentary. In time, things loosened up and tripping up competitors became a part of their playbook, something I felt a degree of sadness to see develop.

Amazon are much more specific. Start with the customer and work back from there.

Unfortunately, I still see server vendor announcements piling into technologies like “OpenStack” and “Software Defined Networking” where the word “differentiation” features heavily in the announcement text.  This suggests to me that the focus is on competitive vendor positioning, trying to justify the margins required to sustain their current business model, and detached from a specific focus of how a customer needs (and their business environment) are likely to evolve into the future.

With that, I suspect organisations with a laser like focus on the end customer, and who realise which parts of the stack are commoditising (and to follow that to it’s ultimate conclusion), are much more likely to be present when the cost to serve steps off the clifftop and heads down. The real battle is on higher order entities running on the commodity base.

I saw an announcement from Arrow ECS in Computer Reseller News this week that suggested a downturn in their Datacentre Server and Storage Product orders in the previous quarter. I wonder if this is the first sign of the switching into gear of the inevitable downward pricing trend across the IT industry, and especially for its current brand systems and storage vendors.

IT Hardware Vendors clinging onto “Public” and “Hybrid” cloud strategies are, I suspect, the final attempt to hold onto their existing business models and margins while the world migrates to commodity, public equivalents (see my previous post about “Enterprise IT and the Hall of Marbles“).

I also suspect that given their relentless focus on end customer needs, and working back from there, that Amazon Web Services will still be the market leaders as that new landscape unfolds. Certainly shows little sign of slowing down.

The precise art of a low margin business

ianwaring Amazon, Future Trends, Management, Pricing Leave a comment
Amazon Book Warehouse

I found this great article that explains Amazons pricing strategy eloquently. It’s also the first time i’ve heard that Apple rotate their stock faster than Amazon do, which is an amazing feat for a manufacturing company. Meanwhile, it doesn’t mention Microsoft, but if you try to insert the characteristics of their business model into the picture presented, you can see why Amazon, Google and Apple have them in a head lock and are emptying the room of oxygen needed to grow. Enjoy:

http://www.eugenewei.com/blog/2012/11/28/amazon-and-margins

What do IT Vendors/Distributors/Resellers want?

ianwaring Budgets, Enterprise IT, Management, Marketing, Metrics, Pricing, Training Leave a comment

What do you want? Poster

Off the top of my head, what are the expectations of the various folks along the flow of vendor to end user of a typical IT Product or Service? I’m sure i’ve probably missed some nuances, and if so, what is missing?

Vendors

  • Provide Product and/or Services for Resale
  • Accountable for Demand Creation
  • Minimise costs at scale by compensating channels for:
    • Customer Sales Coverage and Regular Engagement of each
    • Deal Pipeline, and associated activity to increase:
      • Number of Customers
      • Range of Vendor Products/Services Sold
      • Customer Purchase Frequency
      • Product/Service Mix in line with Vendor objectives
    • Investment in skills in Vendor Products/Services
    • Associated Technical/Industry Skills useful to close vendor sales
    • Activity to ensure continued Customer Success and Service Renewals
    • Engagement in Multivendor components to round out offering
  • Establish clear objectives for Direct/Channel engagements
    • Direct Sales have place in Demand Creation, esp emerging technologies
    • Direct Sales working with Channel Partner Resources heavily encouraged
    • Direct Sales Fulfilment a no-no unless clear guidelines upfront, well understood by all
    • Avoid unnecessary channel conflict; actively discourage sharing results of reseller end user engagement history unless presence/relationship/history of third party reseller with end user decision makers (not just purchasing!) is compelling and equitable

Distributors

  • Map vendor single contracts/support terms to thousands of downstream resellers
  • Ensure the spirit and letter of Vendor trading/marketing terms are delivered downstream
  • Break Bulk (physical logistics, purchase, storage, delivery, rotation, returns)
  • Offer Credit to resellers (mindful that typically <25% of trading debt in insurable)
  • Centralised Configuration, Quotation and associated Tech Support used by resellers
  • Interface into Vendor Deal Registration Process, assist vendor forecasting
  • Assistance to vendor in provision of Accreditation Training

Resellers

  • Have Fun, Deliver Good Value to Customers, Make Predictable Profit, Survive
  • Financial Return for time invested in Customer Relationships, Staff knowledge, Skills Accreditations, own Services and institutional/process knowledge
  • Trading terms in place with vendor(s) represented and/or distributor(s) of same
  • Manage own Deal Pipeline, and associated activity to increase one or more of:
    • Number of Customers
    • Range of Vendor Products/Services Sold
    • Customer Purchase Frequency
    • Product/Service Mix in line with Vendor objectives
    • Margins
  • Assistance as needed from Vendor and/or Distributor staff
  • No financial surprises

So, what have I missed?

I do remember, in my relative youth, that as a vendor we used to work out what our own staffing needs were based on the amount of B2B revenue we wanted to achieve in each of catalogue/web sales, direct sales, VARs and through IT Distribution. If you plug in the revenue needs at the top, it gives the number of sales staff needed, then the number of support resources for every n folks at the layer before – and then the total advertising/promotion needed in each channel. It looked exactly like this:

1991 Channel Mix Ready Reckoner

Looking back at this and comparing to today, the whole IT Industry has gotten radically more efficient as time has gone by. That said, I good ready reckoner is to map in the structure/numbers of whoever you feel are the industry leader(s) in your market today, do an analogue of the channel mix they use, and see how that pans out. It will give you a basis from which to assess the sizes and productivity of your own resources – as a vendor at least!

Cutting Software Spend: a Checklist

ianwaring Budgets, Enterprise IT, Management, Pricing, Purchasing, Software Leave a comment

Arrow going down

No real rocket science, but if you’ve been put in a position to try to make savings on your software spend, this is the sort of checklist i’d run down. It is straight off the top of my head, so if there are nuggets you know that i’ve missed, please throw a comment at the end, and i’ll improve it. The list applies whether you are looking at a single organisations spend, or are trying to reconcile the combined assets from any company merger or acquisition.

General rules:

  1. Don’t buy new when you have redundant assets already
  2. Be mindful that committing to buy in volume is lower unit cost than buying individually
  3. Beware of committing to spend over several years where the vendor prices any agreement assuming straight line deployment toward your total user base at the end of the term. Assume most of the deployment will happen much faster – and that your projected spend will front-load with large true-up costs at annual contract anniversaries.
  4. Don’t pay extra for software updates where no updates are planned in the license term
  5. Don’t pay for software you’re not using!

So, the checklist:

  1. If there is a recommended software list to be deployed for a new employee, be sure to engage HR with a weekly list of leavers, and ensure their license assets are returned to a central pool. Licenses in that central pool should be reallocated out of that pool before electing to go forward with any new purchase. I’ve seen one company save 23% of their total desktop software spend just by implementing this one process.
  2. Draw up a master list of all boxed software (termed “Fully Packaged Product” or “FPP”) that appears to have been historically purchased by the organisation. The associated licenses are normally invisible to the software vendor from a purchase history point of view. Two main uses: (a) it forms a list of what should or could be purchased at more favourable terms in the future using an appropriate volume licensing agreement and (b) it’s a useful defence if your CFO receives a spurious “demand for unpaid licenses” from a vendor. I’ve seen one case of a subsequent reconciliation of previous purchases result in an unsolicited £6m invoice being settled for £1.8m instead.
  3. Likewise, compile a list of the various software licenses purchased, per vendor. This is often complicated because a single vendors products can be purchased from multiple sources, and there are several licensing programs in every vendor. You will often find purchases made for a specific project, where an organisation wide reconciliation can take overall licensing and support prices down – but only if centralising the negotiation supports each projects goals. I have seen one such reconciliation of a vendors licenses in one large multinational company run to 80 pages (and a huge discount to bring in an end-of-financial year renewal), though most result in a 1-2 page reconciliation. You then have the data to explore available change options with a vendor or reseller of your choice.
  4. Ensure that the support levels purchased are appropriate for the use of the products. There is no point paying “Software Assurance” for the remainder of a 3 year term if no new version is scheduled to be released in that timeframe (most effective resellers will have visibility of these release pipelines if you can’t get them directly from the vendor). Likewise, you probably don’t need 24/7/365 support on an asset that is used casually.
  5. Finally, don’t buy support on products that you’re no longer using. While this sounds like a flash of the obvious, knowing what is and isn’t being used is often a lengthy consolidation exercise. There are a variety of companies that sell software that can reconcile server based software use, and likewise others (like Camwood) that do an excellent job in reconciling what is present, and used/unused, across a population of Windows PCs. Doing this step is usually a major undertaking and will involve some consultancy spend.

If the level of your buying activity is large enough to be likely to attract the attention of a vendor or reseller salesperson visiting you in person, a few extra considerations:

  1. Be conscious of their business model; it is different for PC software vendors, Enterprise Software Vendors and Vendors predominantly selling “Software as a Service” or Open Source Software based subscriptions. Likewise for the channels of distribution they employ between themselves and your organisation – including the elements of the sales processes a reseller is financially incented to follow. Probably the subject for another day, but let me know if that’s of any interest.
  2. Know a resellers and vendors fiscal quarter year, and particularly their end of financial year, date boundaries. The extent to which prices will flex in your favour will blossom at no other time like these. The quid pro quo is that you need to return the favour to commit your approved order to be placed before their order cut off schedule.
  3. Beware getting locked into products with data formats exclusive to or controlled by one supplier; an escape route with your data assets (and associated processes) intact ensures you don’t get held to future ransom
  4. Consider “Software as a Service” subscriptions wherever possible, aka pay in line with the user population or data sizes actually employed, and flex with any changes up or down. You normally absolve your IT dept from having to update software releases and doing backups for you in the price, and you should get scale advantages to keep that price low. That said, (3) still applies – being able to retrieve your data assets is key to keep pricing honest.
  5. Always be conscious of substitutable products. Nothing oils the wheels of a larger than expected discount from a vendor than that of the presence of a hated competitor. If it’s Microsoft, that’s Google!
  6. Benchmark. If you’re trading with a reseller with many customers, they have an unparalleled view of previous deals of similar dimensions to your own – including past discounts offered, special deal allowances and all the components needed to lower a price. At the very least, an assurance that you’re “getting a good deal”. I have seen one example of a project deferred when it became apparent that the vendor was giving a hitherto good customer a comparatively poor deal that time around.
  7. For multinational companies, explore the cost differences in different territories you buy through and use the software in. I did one exercise for a well known bank that resulted in a 30% drop in their unit costs with one specific vendor – two years running.

So, what nuggets have I missed? Comments most welcome.

Pricing: How low can you go?

ianwaring Amazon, Digital Ocean, Future Trends, Management, Netcraft, Pricing, Rackspace Leave a comment

Limbo Dancer under very low poleWhile I was at Demon Internet, and a good year before Amazon appeared in the UK, we used to promote a small local company called Bookpages, who were selling Books online. At one point, I heard that US-based Amazon had a meeting with the Directors of the company in London, so guessed they’d enter the UK soon – but kept absolutely quiet. In the event, they jumped into the UK market by buying Bookpages, inheriting all their management team – all a complete surprise to me. Just very glad that I had kept shtum throughout.

Around a year later, I called in to see the Business Development Director in Amazon Slough for a chat about advertising to our customers. I was offered a tour after our meeting; I ended up confronted with a football pitch size warehouse that looked exactly like this:

Amazon Book Warehouse
Having been used to walking around warehouses from my time in IT Distribution, I asked the Business Development Director how many days inventory was in the building. He said: 2 days. Like, wow – they’d fill and empty that warehouse 180 times a year; the scale was absolutely intimidating.
 
We finished the tour passing the packing/shipping area, where a flood of books were being served on conveyor belts to four or so teams; all items relentlessly being sealed into cardboard packing to the incessant bass of loud beat music, and sent over the loading bay into one of the waiting 40 ton Royal Mail lorries.
 
Genius
 
I’ve been a customer of Amazon ever since, and these days hold shares in the company. At some point i’ll get the bandwidth to read the The Everything Store: Jeff Bezos and the Age of Amazon, one book waiting for me on my iPad. There are several strokes of genius in their business model, one of which is their focus to live on the bottom rung of the value chain ladder. To suck all the oxygen out from potential competitors trying to attack them from underneath – which is the way most large companies get disrupted.
 
I found this great article that explains Amazon’s pricing strategy very eloquently. It’s also the first time I’ve heard that Apple rotate their stock faster than Amazon do, which is an amazing feat for a manufacturing company.
 
 

Amazon Web Services

The one surprise to me these days is the public perception of Amazon Web Services being the 100 pound industry gorilla selling Cloud Computing Capacity at lowest prices, that keep ratcheting down as their scale advantages allow them to do so. The largely unknown secret is that they are being completely murdered at the low end and with software developers by relative newcomer Digital Ocean, who have recently got VC funding from Andreessen Horowitz (A16Z).

Future Trouble at t’Mill?

The WordPress network from which this site is served is hosted on Digital Ocean in Amsterdam – cost $12/month for a Linux virtual server, 30GB of flash storage and 3TB of Network capacity per month, which includes the cost of backups and snapshots. When I talk to AWS and indeed to Google, it doesn’t take long to be given special offers paying the first $2000 of my hosting cost – which suggests their pricing is way higher than what i’m able to develop on already. Probably more sophisticated than I need right now, but I guess it’ll be some time before I need to scale to a size that will become interesting to them.

Amazon are far from alone. While folks like Rackspace are a leading proponent of OpenStack to commoditise Hosting Centre Infrastructure, Digital Ocean are walsing way with thousands of their previous customers; it is almost like they are paying no attention to Netcraft Hosting Provider Switching Stats – and at the same time, issuing profit warnings of their own.

I wonder if Amazon similarly start feeling the same heat in the months ahead – and if they are likely to address it before Digital Ocean go flying past.

Jean-Louis Gassee, Priorities, Targets and Aims

ianwaring Apple, Future Trends, Management, Marketing, Money, Pricing Leave a comment

Bowling Ball and PinsEvery Sunday I get a “Monday Note” email from Jean-Louis Gassee, who earlier in his career had the esteemed position of Chief Technology Officer at Apple. Besides the common sense, some of it is laugh out loud funny. Like the time he was invited to a US Meeting of Senior Nokia employees in New York, asked to present on what he’d do to revitalise their fortunes, nominally based on his experience at Apple (see the unvarnished comment in the “ps:” at the end of this blog post). He listed two priorities; One was to fire the CEO (this was the one with a finance background, ahead of when Stephen Elop was appointed). The second was to co-opt Android. I can only imagine the look on the then CEO’s face when he read that out to all the Nokia employees in the audience.

Nokia have now done both, though not before Elop had thrown the company under the Microsoft Bus and where the first million orders for their low end Android phone is set to appear after Microsoft finally take control of the company.

More Priorities

Another instance is when he was still at Apple, and a fellow (new) executive was asked to present their priorities to the Board. Jean Louis describes it thus (the full article, relating to priorities for the incoming CEO at Microsoft, is here):

Once upon a distant time, the new CFO of a colorful personal computer company walks into his first executive staff meeting and proudly shares his thoughts:

“I’ve taken the past few weeks to study the business, and I’d now like to present my top thirty-five priorities…”

This isn’t a fairy tale, I was in the room. I didn’t speak Californian as fluently as I do now, so rather than encourage the fellow with mellifluous platitudes — ‘Interesting’ or, even better, ‘Fascinating, great vision!’ — I spoke my mind, possibly much too clearly:

“This is terrible, disorganized thinking. Claiming to have thirty-five priorities is, in fact, a damning admission: You have none, you don’t even know where to start. Give us your ONE priority and show us how everything else serves that goal…”

The CFO, a sharp, competent businessman, didn’t lose his cool and, after an awkward silence, stepped through his list. Afterwards, with calm poise, he graciously accepted my apologies for having been so abrupt…

Still, you can’t have a litany of priorities.

Growing a Software Business

That reminds me of the first time I was given a software business to run. At Digital, we had two Distributors selling systems to resellers. Newly transferred into that team after DEC had switched the lights out on its first foray into the world of Personal Computers, I was asked to come up with a few ideas on how to grow the amount of software sold via that channel. At the time, the previous year it had transacted around £770,000 worth of software, and was the smallest Software selling “Sales District” in Digital UK.

I duly went and sat on the sales desk at the two Distributors – Rapid Recall (who were Intel’s first UK Components Distributor) and Hawke Systems (who started in the same area, but primarily with Motorola). I talked to sales people. I listened to their phone conversations. I talked to some of their customers. I talked to their product managers. After a few intense weeks of note taking, I produced a 35 page document on ways to increase the software business via the Distributors.

My then boss, Keith Smith, read it and just said “Go do it”. Shit. Where do I start? By a stroke of luck, I got as far as the end of the first three ideas – in two years – and the business was up to over £6 million/year, and now the largest Software Sales “District” in the company. From that base, I got given my next gig, which was to start the DECdirect Software Business; selling VAX Enterprise Software, armed only with a catalogue, 8 telesellers, 2 tech support, 25,000 potential customers and direct delivery from Software Manufacturing in Galway – which had an even bigger impact. It went 0 to over $100 Million in 18 months, at 89% gross margins.

Growing a Systems Business

A few years later, I got given a flatlining Distribution IT systems business to improve. That started off with a brainstorm on all the potential ways to grow the business, which ended up with 36 specific ideas on the board. What we then did was to list all 36 ideas down the left hand side of a table, and put 4 additional columns across the top:

  1. Ease of Implementation (1-5): on the scale, 5 was easy, 1 was hard
  2. Chances of Success (1-5): 5 for a Sure Thing, through to 1 if unlikely to prevail
  3. Revenue Potential if successful: we made an educated guess on likely business levels if all went well
  4. Total of (1) x (2) x (3)

We then went down the whole table, taking the teams view of scores for each of the 36 business ideas. Once done, filled in column (4), we picked 3 strategies with the highest total scores, and binned the rest. Those were our three priorities. That business went from £12 million per year to £52 million per year within 2 years, while our primary other Distributor competitor went from £10 million per year to… £10 million per year.

Likewise, much later on, applying the same disciplines to the VMware business I ran at Computacenter for 2 years (alongside looking after 1,071 other vendors as well in our team of 4), we got from 7% market share to 21% in two years, and won their prestigious “Global Solution Partner of the Year, 2012” award. The whole underlying strategy had 2 key aims, and 3 subsidiary development goals. Worked a treat:

VMware Global Solution Provider of the Year 2012 Trophy

The top 3-5 priorities are the only ones to focus on

Ever since, every business i’ve run has boiled down to 3-5 priorities, in order of impact – which is very much like organising a set of bowling pins and knowing, at all times, what you’re aiming at.

If you get down to brass tacks – and this is something I learnt from Microsoft when selling their wares – there are four key levers in any business. To improve profits, you sell:

  • More Product(s)
  • to More People
  • More Often
  • At More Margin (which is higher price and/or lowest cost)

Graphing the number of *different* products you sell per year, how many different customers you sell to per year, the average purchase frequency per customer per year and the overall margin percentages per year, all on separate graphs, will normally isolate pretty quickly where a business is succeeding, failing or (at the very least) which way it is trending. Towards future success, or alternatively, towards oblivion. Once you understand the dynamics you’re faced with, you can start addressing how you’re going to push things forward.

And i’m far from alone:

Equally applicable, I noticed on my weekly Quora Digest this morning that someone had asked how to prioritise feature requests submitted to a Product Manager. I thought the answer from Ian McAllister of Amazon was extremely good – see it in the flesh here – not least because if follows the same sort of process i’ve found has worked well down all the years in my sordid past.