As an entrepreneur, you try to find inspiration and ideas from everywhere. Your mind is always open when you are watching a movie you admire the team effort and creativity when you go to a theme park like Disneyland with kids you admire the great leadership of Walt Disney in creating something unique during his lifetime. A lot of such activities played a major role for me in building BizTalk360, the product, the company and the team.
One such thing is the pricing change we introduced along with BizTalk360 version 8.0. The pricing change came as a result of me purchasing a new car. Back in July 2015, we decided to change our car and I was researching the options, it was fascinating to find out how the car manufacturers structure the pricing of the car with different options. I immediately wrote an article about it on my personal blog called “What I’ve learned about software pricing, in the process of buying a new car” that was kind of eureka moment and made me realise the mistakes we are making in our current BizTalk360 pricing.
Since version 8 was around the corner, we decided it’s the correct time to make that all-important pricing change. We could have released BizTalk360 v8 at least 4 months ahead if we didn’t make the pricing change, it was a painful exercise across the board which involved fundamental changes to the licensing codebase in the product, changes to the backend systems, educating the licensing team, and more importantly working out a commercial model that will not upset the existing customer.
What is the problem with the previous licensing model?
Prior to version 8, we had a flat licensing structure. BizTalk360 is one gigantic product with some 50+ features, every customer gets every feature in the product. We still had different pricing options like Standard & Enterprise options and enterprise comes with 4 different tiers (Bronze, Silver, Gold and Platinum) and our pricing page looked like this.
The different pricing was driven mainly by just 2 attributes, the number of BizTalk Servers you have an environment and a number of BizTalk applications you deployed in your environment.
This pricing model was fine at the early stages of BizTalk360 where you had a handful of features in the product, but when your team started to grow and when you started adding more and more interesting features into the product we started getting into an important challenge, what we call it “25% problem”. Every customer you started to speak started complaining, they use only 25% of the product. Some customer bought BizTalk360 for the monitoring capabilities, some bought it for the security/governance aspect, others bought it for it’s advanced productivity tools etc. It’s understandable in any software it’s very unlikely you are going to use every feature. A classic example, we probably are using only 1 or 2% of what Microsoft Word and Excel are capable of.
Even though BizTalk360 is relatively cheaper for an enterprise product, This is a psychological issue, customers are getting the feeling they pay for a lot of unnecessary features, which they don’t need.
The new version 8.0 pricing model
One of the important decision we have made in version 8.0 pricing is to make it features based pricing. Instead of shipping BizTalk360 as one single unit with all the features included, we partitioned into multiple tiers with relevant features as shown in the below picture.
As you can see, the basic tier “Bronze” starts with just monitoring and basic read-only admin console, the next tier “Silver” comes with Monitoring + advanced operations, the third tier “Gold” comes with productivity/troubleshooting tools and portals like BAM & ESB and final tier “Platinum” comes with advanced features like analytics, BRE composer and real-time activity feed.
We also made an important decision of removing the limit on a number of BizTalk applications deployed. The pricing is basically per BizTalk server, you simply choose the relevant tier and multiply the price by a number of BizTalk servers you have. We have special discounted price for customers who are using Microsoft BizTalk Standard edition and a subsidized per server pricing for non-production environments.
With this new model, the customers are happy and they don’t have the psychological barrier of paying for unnecessary features.
Why is this pricing change important?
Apart from the obvious benefit what customers get by paying for features only they require. There are two important attributes you need to think about as product company for the sustained growth and survival. Often times product companies do not pay attention to the following
- How are you going to recover your customer support cost? and
- How are you going to recover the development cost?
One of the things the project companies overlook is the cost associated with customer support. When we are so excited to bring more and more interesting features into BizTalk360, we also need to keep an eye on the cost of supporting it. Replying to customers queries via email, forums, and live meetings all cost a considerable amount of money. If you pay attention to your customer support metric, a support engineer will spend anywhere from 15 to 30 minutes just to compose and send that email. If you arrange for a call with a customer, that typically will take away 45 to 60 minutes of a support engineers time. As you can see, all these things will build up very quickly and these costs need to be factored into the pricing correctly.
The features based pricing helps to minimize the customer support cost. For instance, you’ll have the only handful of customers using advanced features like BRE composer or real-time activity feed. This indirectly results in reduced support cases. Also, keep in mind, not all of your support engineers will be capable of solving all the problems. You will need specialized support, ex: direct engineering team to support certain advanced features, which obviously going to cost more.
The other important factor is how are you going to compensate the development cost, which internally will have other costs embedded like analysis, functional QA, non-functional QA etc. It’s important you take all these into consideration on your pricing. It will not be sustainable to simply keep investing more and more in new features and not planning for the revenue correctly. This will soon result in a disaster, so plan accordingly.
What happened to existing customers?
One of the biggest challenges in changing the pricing is, addressing the challenge of how it’s going to impact your existing customers. One easy option or more ethical way of solving this problem is by simply not making any pricing change to existing customers. Any new customer will go through the new pricing model and we adapted some basic rules for existing customers.
In our case, we simply gave everything away to existing customers except 3 advanced features (BRE composer, Analytics and Real-time activity feed) and we also made a special offer for them to just upgrade and get those three features. You need to make a reasonable deal for existing customers so they don’t feel uncomfortable at the same time you also need to make sure you are not giving away everything and putting yourself in a critical position.
We have a detailed article on our support portal explaining the licensing changes for existing customers.