I help hundreds of technology buyers each year to understand the impact of technology changes on their software contracts, but I also get questions from software providers about how best to price their products. Some are bringing new products to market and want to know how to maximize revenue, while others are struggling with obsolete metrics such as per processor and want to update their pricing for the modern mobile, cloudy world. The answer is usually to find licensing metrics that make their pricing value-based while balancing simplicity and fairness. The more value a customer gets from your product, the more they should be willing to pay for it. If you make your pricing too simple then you won't match value sufficiently closely, which will cause you to price yourself out of some deals and leave money on the table in others. If, OTOH, you try to match value too precisely you risk making your pricing so complicated that buyers will reject it, and you, completely.

For example, suppose you have a product that will help people do their jobs better, so you decide that charging for each user will be a good approximation for value. The potential problem is that not everyone will use your product the same, in terms of depth of functionality and/ or frequency of access. Your single per user price will be unfair to companies with long tails of light, infrequent users, for whom you'll therefore be too expensive. Conversely your pricing will be unfair to you when the customer is mostly power users. To make your pricing fairer you could have different prices for different categories of user, but then you risk being criticized for being too complex.

Avoid the 2013 holiday rush – start your year-end software negotiations now! Have you just about recovered from several adversarial, transactional software procurement negotiations last month? Have you resolved to avoid a similar situation next year? Then Forrester’s Strategic Software Sourcing Playbook can help you.

Apparently 38% of Americans made weight-related resolutions in 2012, and 67% of people with gym memberships never use them. So my advice is to shun anything you’ve seen in a TV infomercial (“we called it Lunacy because you’d have to be mad to buy it”) and instead make your New Year's resolution to be more strategic and proactive in your software buying in 2013. Our Playbook, launched today, explains how to do that.

Reactive, adversarial software buying is ineffective in the new business technology (BT) world of self-provisioning, cloud deployment, and mobile access. IT sourcing professionals' colleagues bypass them in the sourcing process, while powerful technology vendors expect more revenue from them than they can afford to provide. Software sourcing professionals rarely have alternative suppliers that they can use as negotiation leverage, so you need something more than your natural charm and belligerence if you are to be effective. Forrester's solution is a strategic approach that aligns the commercial model for each supplier with its place in the enterprise's software sourcing strategy.

SAP is advertising for a new Director Of Pricing & Licensing. The job description states “The Strategic Pricing Director is a key member of SAP’s Revenue Strategy and Pricing Group. Pricing is a critical component of SAP’s overall strategy and go-to-market activities.” Duties include:

·         Develop and implement pricing strategies based on economic and competitive dynamics.

·         Price products and services appropriately based on the value customers receive.

·         Define and drive pricing strategy for new and/or existing solutions.

IMO, SAP does many things very well in the pricing and licensing domain. I cite it to other publishers as an exemplar of best practices in a couple of areas, such as its pricing by user category, use of business metrics for parts of the suite that deliver value independent of manual use, and tying maintenance volume discounts to conditions such as centers of excellence that filter out users’ basic support calls. However, SAP does have room for improvement, in terms of Forrester’s five qualities of good software pricing, namely that it should be value-based, simple, fair, future-proof, and published.

Considering those goals, and as an advocate for software buyers, here are some things that I’d like SAP to add to the job description:

Oracle reported its results for the three months to February 29^th yesterday, and it beat analysts’ expectations. Software license sales were up 15% from last quarter, and up 7% on last year’s Q3. The blogosphere’s “Oraclefreude” delight at its disappointing Q2 appears to have been premature. Enterprises’ insatiable demand for processing power and Oracle’s excellent products ensure a continuing demand for more "per core" license capacity of its flagship database products.

“Oracle is on track to deliver the highest operating margins in our history this year,” said Oracle President and CFO, Safra Catz, in the company’s press release. “Oracle can achieve these record margins as an integrated hardware and software company because we are focusing on high margin systems where hardware and software are engineered to work together.”

What does this mean for sourcing professionals considering Oracle deals in its important fourth quarter to May 31^st?

Despite Oracle’s financial rebound, I’m still confident that sourcing professionals with leverage will be able to get better prices in the next three months than they’ve gotten before, provided they use that leverage wisely. Here are three reasons why:

I’m always searching for new negotiation best practices and tips when I’m speaking with Forrester clients, but it's not often I find one when I’m relaxing in bed with an old favourite, recently rediscovered book. But here’s one that I hope you’ll find amusing, and educational, from a book written over 80 years ago.

The current Mrs. Jones did some “tidying up” over Christmas — her euphemism for moving my stuff from its organized filing places in her office and dumping it as a jumbled pile on the floor of my office. In amongst a number of unwanted books and DVDs, now available at very reasonable prices on Amazon, I found my ancient copy of Kai Lung Unrolls His Mat by Ernest Bramah. It’s a wonderful book — set in China at some unspecified date in history — and written, so the preface claims, in that country’s classical convoluted style replete with analogies, adjectives, and apophthegms[i]. Read this passage about the ivory carver, Chan Chun, and his lowly assistant, Kin Weng, buying some new tusks from the merchant Pun Kwan — I hope you’ll love it as much as I do.

Pun Kwan and Chan Chun began slowly to approach, the former person endeavouring to create the illusion that he was hastening away, without in reality increasing his distance from the other, while the latter one was concerned in an attempt to present an attitude of unbending no-concern while actuated by a fixed determination not to allow Pun Kwan to pass beyond recall. Thus they reached Kin’s presence, where they paused, the sight of the outer door filling them both with apprehension.