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I'm stuck!

Gotta go undercover on this one, but hope the forum would help me like in good old days :)

I am selling B2B application, it could roughly be categorized under software development/monitoring tools. When I started few years ago  I was offering an OEM license which was granting the rights to other software vendors to bundle our product with their own. It was initially priced incredibly low for two reasons - a) I had no idea how to price this. b) I wanted to get customers. It worked great and we sold quite a bunch of those. As time went by I've started to realize that this license type is ridiculous money-wise. Well... it did serve the purpose very good - it named and positioned me in the market, it attracted users. So, I've decided to put the price tag and its mentioning off the web site and eventually suspend this license completely (while honoring existing users of course). We then replaced it with two others -  per-installation license and site floating license. No more distribution rights, only use for development purposes. The site license is priced at 1.5K (so that you have a sense) It goes very well and we have started to forget about an OEM license for good.  Until now.

I received a quote request from a large company, they would like to get that old OEM license and asking for the price. Of course one should be jumping happy about a big looming sale, but for me it's more a worry than fun (until I learn to extract fun from this!).
First, I have no idea how to price my thingy for this kind of customer. Second, I've no idea how to ask them 'how much you guys are willing to pay' or stuff like this. I've looked at the company profile, it's a several billion dollar software behemoth, present in many countries with lots of sites. They want to bundle my application into their own solution/s - exactly the way my original OEM license was intended.

So I ask you guys to give me some hints - how would you figure out the price with someone practically unknown to you? What to ask? Should there be some kind of dialog? How do I value my product from their perspective? I could of course just ask for some handsome figure, but I don't think it's a right way of doing it. I need to start learning something about this business “diplomacy” stuff, or whatever it’s called. Please share your experience!

(My gut tells me - tell them that "we don't offer this licensing any longer, but how we can help you nonetheless.. ")
Antonimus Send private email
Wednesday, September 07, 2011
 
 
The great news is this big company is interested.

What are the alternatives that this company has?
Write their own?
Buy from someone else?

How much will this cost the company and what result would they achieve?

How much will it cost you to do business with them?
How much effort do you need to put in to get $X dollars back?

What's you current financial situation? 
If you need the cash - put a lower quote in. 
If you are doing pretty well and could live without it - put a higher quote in.

Pricing is one of the most difficult tasks to get right - but I think you should concentrate on the amount of value you would be providing this company.
If they have 10,000 PC's they want to install it on and the base price is $100 / seat - I would expect $15 - $20 / seat resonable for 10,000 seats - maybe $100,000?  (as an example of my thinking).  Bit again - who else can they buy it from and how much would it cost for them to develop themselves?

Good luck
Ray Smith Send private email
Wednesday, September 07, 2011
 
 
Ask them right away how many units they think they can sell in a given time frame, e.g., quarterly. A general rule is the higher the number they can sell, the lower the unit price -but they eventually must commit to a number and you should require some sort of advance.

Start with a price higher than your old OEM price and negotiate. Dont make it so high that they wont give you a counter offer. Two things you can negotiate are  a minimum number of units they have to buy(inventory) and an upfront payment -these can be especially important for you  if they insist on a low unit price.  I used to negotate this sort of contract when I worked for a software company years ago. We always required the right to audit their sales annually, though we never did -the right to do so usually keeps folks honest.

If possible, meet with them in person. If not, negotiate by phone. Avoid doing it by email.
Bill Anonomist Send private email
Wednesday, September 07, 2011
 
 
@Ray "who else can they buy it from and how much would it cost for them to develop themselves?"

There are alternatives. But the prices to those alternatives aren't available, not even on per-seat basis, not talking about an OEM agreement. I suspect that competitor apps would go for ~10K per deployment (it's server-like software), no idea what they charge for the distributable package. This is my advantage actually - I am lean, strict on feature set, almost no support cost involved, it just works. We grow slowly but steadily, I don't think I want to get big that fast and get locked on a small number of large companies. To develop something like this they would probably spend couple of years, but I think it's out of the question, nobody I know would develop stuff like this in-house. So the only alternative for them is my competitors.

@Bill
My old OEM license was fairly simple - it was fixed priced with no special commitments, no special support and other arrangements you normally see with OEM licensing. Actually I should have called it a 'Developer License' in the first place. I will try to ask them directly how many deployments they anticipate on a yearly basis, may be I'll be able to fish out some numbers..
Antonimus Send private email
Thursday, September 08, 2011
 
 
How much does their solution cost? Are they selling a perpetual license, a subscription model or something else?

Do you anticipate having to do lots of support? Do you anticipate that they will ask for customization in the future?

I suggest your licensing follows theirs: if they're perpetual license ask for a royalty and a % of the maintenance agreement (especially if you anticipate having to provide lots of support). If they're a subscription model, you license accordingly.

Ask for an upfront payment - you're going to need the cash to pay the lawyer who is going to create the licensing agreement :)

Good luck!
brian__ Send private email
Friday, September 09, 2011
 
 
I semi-recently did a little research on this myself.

My goal was to furnish a reseller agreement (it was more of a VAR than it was OEM as they essentially wanted to dress up my software with some additional services and sell it as the next version of their own software which they stopped developing as it became too complicated to do and figured they'd sell mine instead).

I decided on a tiered discounting system where I essentially offered 0% discount on volumes of 0-3 sold.  5-10 was 30% etc. etc ...

Like others have already said, you really need to understand the value they're gaining from having your technology used within their own software.

These links might be useful to you:

http://discuss.joelonsoftware.com/default.asp?biz.5.761566.6

http://www.softwareceo.com/forum/thread/1987/OEM-Licensing---Typical-Terms/?highlight=oem

http://www.softwareceo.com/forum/thread/3350/royalty-payment-range/?highlight=oem+royalty


HTH
BI Baracus Send private email
Friday, September 09, 2011
 
 
@brian, thanks for the tips.
I don't know how much their solution costs, I do know however that they have various 'solutions' and are willing to include my stuff in them. Last thing I'd be wanting to get into is to figure our what exactly they do and how they make their money. The support could explode. We don't have much of it right now, but if this very small amount of calls we have now will be multiplied ten-twenty fold - this could actually kill us.

@BI Baracus
Yes, I understand that I need to understand the value they get from me. And the problem is to initiate some kind of dialog. What I've got so far is a flat question - "how much?". It kind of feels awkward to reply with "how much you got?" Well, I'm not a sales shark :)
(thanks for the links!)

Since I'm unable to figure anything out I think I will refuse to license until I learn this wizardry.
Antonimus Send private email
Friday, September 09, 2011
 
 
I'm a little late to this thread, but I'd say no, don't refuse anything. It could be a good opportunity.

I'd call them up and ask them about the scope of the project. Business customers all know the "how much can you afford" ploy, so instead approach it like you just want to know what costs might be involved. They'll understand that. Acknowledge that you are both just trying to sell your products, are partners in this, and they'll probably be pretty open about the numbers.

And if they're bundling it with their solution, they are probably expecting to handle all first-level support anyway. You could offer them some kind of training of their support staff, or a knowledge-base for your product, if you have it.  The idea is they'd do email or phone support to you only with the things they can't solve. But you probably shouldn't be dealing directly with their customers, I'd think.
CC Send private email
Wednesday, September 14, 2011
 
 
@CC - thanks, this is close to what I've done so far. I told them that we can't provide any special efforts involving massive support, training, or whatever they might expect (simply not there yet). They said, sure, they understand that and actually don't need more than regular support we offer to everyone. In return I've given them a quote and they went on with more evaluations.. I will post an outcome of all this.
Antonimus Send private email
Saturday, September 17, 2011
 
 

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