What is Microsoft doing with CRM pricing?

I have just heard that Microsoft has changed its pricing for Dynamics CRM, which will make it substantially harder to sell to smaller businesses.

Previously, a customer had a choice of purchasing either CRM Standard or CRM Professional, unless they had multiple branches in which case CRM Professional had to be purchased. Now, Microsoft has mandated that any customer with more than 5 users must purchase CRM Professional. The price difference apparently is significant and will result in some of our CRM prospects looking elsewhere for their CRM solution.

What makes it worse is that it sounds like Microsoft did not properly announce the price changes.

ERP pricing

Vinnie is fond of asking why ERP vendors, and especially implementers, don’t lower their pricing. Take a recent post, SAP’s Egosystem (nice play on words), where he asked

Why is systems integration still so expensive after 35,000 SAP customers and countless upgrades?

Maybe SAP’s value is not based on price, but instead on customer intimacy or product excellence. Here I am referring to the three value disciplines advocated by Treacy and Wiersema, The Discipline of Market Leaders.

If a company wants to get ERP at a low price, they should be considering some of the open source offerings, or the low-end accounting/ERP packages. However, if a CEO wants an ERP system that he knows will work, and can work for his type of company, perhaps he should consider those vendors for whom price is not the driving value.

Can ERP implementations be fixed-price?

A couple of bloggers experienced with ERP projects are making the claim that ERP implementations could be done as a fixed price product:

Roberto Galoppini’s Commercial Open Source Software

I’m sorry guys but I must disagree.

The example used is that of the US hospital group that has ‘productised’ (awful word, by the way) some of its heart surgery procedures. The extrapolation being that if it can be done for heart surgery, why not ERP implementations.

While they are both complex procedures, one of them (heart surgery) is governed by physical rules – physics and chemistry – but the other is subject to the far more complex and vague rules of people and social interaction. It’s the same reason why sociology and economics aren’t considered sciences – because when you deal with interactions of people, things are far harder to understand and predict.

When I was one of Microsoft’s Dynamics NAV implementers, we tried very hard to push fixed price implementations with a packaged solution set called RIM (Rapid Implementation Methodology) because it was supposed to appeal to smaller companies. But once you got into a project you uncovered complexities that the customer didn’t even realise where there, and so variation orders had to be added to the fixed price. Perhaps for a basic financial system a fixed price project might suffice, but not for other areas of business; for manufacturing implementations specifically, Microsoft recommended that a fixed price project should never be quoted.

SAP’s Business One pushes fixed price implementations, but we heard from companies who have gone that route that they get a basic system which then costs them real money if they want the system to run like they need it.

The day I hear a lawyer offer fixed price court proceedings, or an accountant offer fixed price auditing, then I will consider fixed price ERP implementations.

Microsoft expansion – speaking too soon?

When I commented that Microsoft’s expansion plans for emerging markets looked realistic, I hadn’t counted on the follow-up analysis by Joe Wilcox who now questions whether $3 for MS Office and a few other packages is too expensive.

Many commentators liken it to a drug dealer who gives away his stuff to kids at first so they become addicts. Likewise, once you have hooked students on Office, you can charge them the full +R2000 once they want the real thing.

The other interesting comment is that governments in those countries may also not want to get hooked. I know some SA governement departments are strongly anti-Microsoft – i.e. pro open source – and R21 for MS Office probably won’t change their minds either.

More on ‘the win’

Updating the information of the win I blogged previously:

– our competitors included Oracle, Sage, Accenture, SAP, Microsoft Dynamics GP, as well as the ones I mentioned before, Dynamics AX and AccPac.
– the customer commented “users of the system will not be a well educated type of user and that the simpler the product is to use the better it will be utilised within the group.” How many ERP vendors factor that into their product? Remember (vendors) in developing countries it can be a significant factor.

As for pricing, which Dennis commented about, I will not be too specific (for obvious reasons):
– The SYSPRO software pricing was in the $100k region (depending on the US-SA currency exchange rate); the add-on software price was relatively small
– The services pricing was greater than the software licence price, but not hugely.

What is SAP Bus One doing?

I don’t know if it is happening in other countries, but SAP Business One (SBO) is really upsetting the small-medium ERP market in South Africa. How? With its pricing model for software and implementation.

The SBO software licensing price is at a substantial discount, in comparison Microsoft has to discount NAV by 30% or more to be competitive on licence price. SBO implementations seem to be following a stripped down, basic template model, because their implementation costs are so low and the projects are short.

I first came across the SBO pricing over a year ago, and at the time many thought it was a short term campaign to get market share. But SBO is still running with the model, and has knocked many competitors, including local ERP vendors who should be able to give very good pricing.

What this pricing is doing to the local market is that competitors have to come down to the SBO level to compete (so we compete only on price), and small-medium companies get the message that ERP software is cheap. But ERP software is complex stuff, and therefore shouldn’t be just seen as a slightly more fancy accounting system. What this price competition means for the local ERP market we may have to wait a year or two to see, but as other industries have learnt, when all you do is compete on price then other things like quality and functionality get put aside.

Why are small-medium businesses falling for the SBO approach? Because unlike large companies, their concerns are primarily around price, and only next around functionality and longer-term viability. If the price is good, and it’s “good enough” for what they want, then the choice is clear.

What I am waiting to hear is stories of small-medium companies who have to scrap an SBO implementation because the software doesn’t deliver what they wanted in the end. But I think its going to take 2-3 years, and because those companies are usually privately owned, we are unlikely to read about it in the press.

What is the price of software?

A year ago I first encountered the way one of our ERP software competitors priced their small/medium business application – it was 30-40 percent lower than the list price we started off with.

At the time, we thought this was an attempt by that vendor to increase market share and wouldn’t last too long. A year down the line, and that vendor is still pricing way lower than we do when we first go into an opportunity. The functionality of both our products is about the same, so I am starting to ask the question “how do the ERP vendors come up with a price for their software?”

Frankly, it seems to be arbitrary. Vinnie at the deal architect discusses this in his “process angioplasty” columns, and reckons that the ERP vendors waste that money on useless overheads. I saw that recently at the Microsoft Open Licensing seminar, when every attendee got a box which the Microsoft marketers thought would be “nice” to help promote their product licensing.

If our competitor, one of the big ERP players, believes they can operate successfully by pricing low, why can’t our vendor realise that? After all, isn’t the main income source the annual maintenance payment rather than the initial software licence?