Software Product Management and Pricing

Transcription

1 Software Product Management and Pricing These two seasoned practitioners have masterfully distilled the essence of the software business and the art and craft of the increasingly important and challenging field of software product management. Worthwhile to any who want an appreciation of the evolving world of product management, seasoned veteran and new entrant alike. Richard Campione, Senior Vice President, Business Suite Solution Management & CRM On Demand, SAP, Germany/USA Mr. Kittlaus and Mr. Clough have used their considerable knowledge and experience to succinctly lay out the value chain that is essential to the development of a financially healthy software company. If you want to understand how to turn software technology into a long-term profitable company this is the book to read. Paul Kaplan, Vice President, Worldwide Enterprise Software Sales, Software Group, IBM, USA This book on Software Product Management and Pricing is the first book that treats the business of software in a systematical way. Although software products were already shipped in the seventies of the last century, there are hardly any books providing an overview of all issues a company faces when playing a role in this industry. Product management and pricing are key processes, and this book informs the reader of the essentials. It is a must-read for anyone involved in software products, be it in business or in research. Prof. Dr. Sjaak Brinkkemper, Information and Computing Sciences, Utrecht University, Netherlands This compendium covers all facets of the software business using the advanced professionalism of the industry s global players as its standard. The authors have managed to combine professional accuracy with helpful practical examples and valuable references for further reading. Highly recommended, in particular for managers in corporate IT and software vendor organizations! Wilhelm Gans, CTO, DSV Group (German Savings Banks Organization), Germany A comprehensive book on best practices for software product management and pricing. It provides a deep insight into strategy and tactics of software organizations in a time of growing complexity and new challenges like Software as a Service. Udo Hertz, Director of Information Management Development, IBM Germany Research & Development, Germany

2 Hans-Bernd Kittlaus Peter N. Clough Software Product Management and Pricing Key Success Factors for Software Organizations 123

3 Hans-Bernd Kittlaus InnoTivum Consulting Im Sand 86 D Rheinbreitbach Germany Peter N. Clough InnoTivum Consulting 9 Light Horse Lane Pound Ridge, NY USA pnc@innotivum.com ISBN e-isbn Library of Congress Control Number: Springer-Verlag Berlin Heidelberg This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permissions for use must always be obtained from Springer-Verlag. Violations are liable for prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: KuenkelLopka GmbH Printed on acid-free paper springer.com

4 Preface Amazingly, in a time in which book fairs are overflowing with a multitude of new publications, there are important topics which are not yet addressed in literature. Software product management used to be one of these, software pricing still is. When we first dealt with these subjects in IBM in the 1980s, it was like occult science with a few insiders who did not share their secrets with others, let alone reveal it to third parties. There was no literature on the subject. Through a laborious learning-by-doing process, we gradually became insiders ourselves. Peter Clough worked on IBM s software pricing and terms for over 20 years, the executive from 2002 to 2008 who designed the pricing for the largest software deals, before he started his own consulting business. Hans-Bernd Kittlaus was responsible for IBM s European product management for database and application development projects before he made his first attempt, as director of the German savings banks organisation at the end of the 1990s, to take the concept of software product management into an organisation with thousands of application developers. There was still no literature. In 2004 he co-authored one of the first books on software product management ([KiRaSch04]) and started to consult software vendors and corporate IT organizations on the subject. The book in your hands provides an updated comprehensive view of software product management and the first extensive publication on software pricing that we are aware of. We hope you find the work both thought-provoking and useful. On www. innotivum.com you can find updates and additional information. The judgement of our success we leave to you and look forward to your criticism and praise at info@ innotivum.com. We would like to thank our many former customers and IBM colleagues who formed the crucible in which many of our ideas were shaped (sometimes by agreement, sometimes by criticism, almost always by wisdom) over many years. We would also like to recognize Christoph Rau and Juergen Schulz, Hans-Bernd s coauthors of his previous book on software product management ([KiRaSch04]), for all the work that they put into it and that helped with this publication. We thank Hermann Engesser and Dorothea Glaunsinger from Springer-Verlag for the good cooperation. Our special thanks go to Richard Campione, Senior Vice President of Suite Solution Management, SAP AG, an industry leader highly experienced in software product management in a broad array of software companies, for sharing v

5 vi Preface his insight and experience and to Paul Kaplan, IBM Software Group Vice President of Worldwide Software Enterprise Sales, for his thoughtful reading of and many insightful suggestions for the chapter on Pricing. We also thank Karl A. Wagner, Director and Head of ARIS R&D, Product and Solution Management, and his product managers Georg Wilhelm und Uwe Roediger of IDS Scheer AG, for some very helpful discussions. We thank Sjaak Brinkkemper and Inge van de Weerd, Utrecht University, Netherlands, and Gartner, Inc. for giving us some graphical images for publication. Thanks also to Strategic Pricing Group, Thomas Nagle, and John Hogan for allowing us to reproduce their Strategic Pricing Pyramid. Last but not least, special thanks go to our better halves for accepting the fits of writing and writer s block without complaint and for their moral support. Rheinbreitbach, Germany Pound Ridge, New York, USA September 2008 Hans-Bernd Kittlaus Peter N. Clough

6 Contents 1 Introduction Software Product: Terms and Characteristics External and Internal Views on a (Software) Product The Software Product as Type and the Customer-Specific Installation as Instance Product Platform, Family, and Line Product Name, Version Numbers and Compatibility Attributes of Software Products Software as a Business IT Doesn t Matter? Specific Business Aspects of Software The Financial Life-Cycle of a Software Product The Software Ecosystem Law of Increasing Returns Business Models for Software Vendors The Business Considerations for Corporate IT Organizations The Changing Relationship between Software Product Management and Software Pricing The Elements of Software Product Management Objectives The Role of the Software Product Manager Framework Market Analysis Product Analysis Product Strategy Corporate Vision, Strategy, and Portfolio Management Some Fundamental Decisions Positioning and Value Definition vii

7 viii Contents The Business View The Ecosystem The Legal Terms Protection of Intellectual Property Product Planning Roadmap Release Planning Requirements Management and Specification Development Marketing Sales and Distribution Support and Services Tool Support Software Product Management Summary The Elements of Software Pricing Objectives The Role of the Software Pricing Manager The Software Pricing Framework Pricing Strategy Price Structure, Policy and Level Price Structure Charging Alternatives Price Policy Price Level Price Level and Market Tiers Price Level and Competition Price Level over Product Life Price Level Special Situations Pricing in Distribution Channels Web Distribution Business Partner Distribution Channel Conflicts Pricing for Large Customer Accounts Enterprise Vendor Relationship The Value Proposition Internal Decision Makers and Influencers Price Structures and Discount Structures Special Bids Enterprise Offerings After-Sales and Pre-Sales Global Customers Sales Training on Pricing Customers with Full Vendor Portfolios

8 Contents ix 5.8 Negotiation Negotiation Styles and Gambits Negotiations at the End of Quarter Pricing in the Global Market Price Uplift One Time Charge Products Recurring Charge Products Business-to-Consumer (B2C) Software Software as a Service Pricing for Corporate IT Organizations Classic Allocation of IT Costs Allocation of Usage-Based Charges Characteristics of a Good Chargeout Scheme Corporate IT Conclusion Pricing Summary Software Product Management and Pricing in the Corporate Structure Software Product Management in the Internal Environment Software Pricing in the Internal Environment Organizational Alternatives Scenarios Summary and Outlook A Job Description of Software Product Manager B Job Description of Software Pricing Manager C Software Product Management and Pricing in the Literature D Glossary Bibliography Index