How should you price your software?
It is the commercial philosophy of ProCADIS to put pricing decisions in the hands of sellers. Similar to the popular internet platform eBay, ProCADIS's Digital Exchange exists to bring buyers and sellers together in a virtual marketplace.
However, given that the market for second-hand software is very much in its infancy, it can be difficult to estimate how much a perpetual software licence will sell for. ProCADIS experts are available to provide guidance in this.
There are a multitude of factors which will influence the attractiveness of a software licence on the market. In order for a seller to recover as much as possible of the original cost of acquisition of the licence, the following influencing factors should be considered in order of relative importance:
1. The software publisher's pricing policy
Some software publishers have very high list pricing and then offer discounts between 80% - 90% more or less as standard; others only offer 10 or 20%. Why does this matter for second-hand software sales? The most obvious difficulty for a buyer of second-hand software is to purchase maintenance at affordable rates. The software publisher can attempt to discourage second-hand sales of their software licences by insisting on charging list price for maintenance and support. In the case of a software publisher that typically discounts by between 10% and 20%, this is not as much of a disincentive as in the case of a software vendor who typically discounts by 80% and 90%.
2. Existing maintenance
If the licence is being sold with a period of maintenance and support still to run, then this will obviously increase its value. Firstly, because during the maintenance period the buyer need not purchase maintenance. Secondly, because the buyer (or ProCADIS on the buyer's behalf) has time to negotiate with the software publisher in order to agree a reasonable price for a future maintenance term. Compared to requiring a maintenance contract immediately, this is a huge advantage to the buyer.
3. ProCADIS's partnership agreements with software vendors
ProCADIS strives to reach agreements with software publishers. Our intention is to encourage software publishers to see second-hand software sales as an opportunity to expand their client base. Software licences that are no longer used provide no income for a software publisher, whereas a second-hand sale can give that licence a new lease of life, and gives the software publisher a new source of revenue from maintenance and support payments. By cooperating with software publishers, ProCADIS adds to the value to software licences by giving the buyers of that software confidence in acquiring licences with the approval of the software publisher.
Fore more information, please look at the section dedicated to partners on our website or contact us directly.
4. Third-party support providers
The value of the second-hand licence will be greatly enhanced by the presence of a third-party support provider. The market for third-party support on software is growing rapidly. Rimini Street, Spinnaker Support, Alui, Support Revolution and CedarCrestone offer support on many software products from top vendors, often with better SLAs than what the software publisher will offer. As a seller, being able to offer the buyer the possibility to purchase third party support will greatly increase the price a second-hand licence will achieve. ProCADIS can advise you on this and propose solutions via our partner network.
5. The stability of the software and the need for updates
Stable software product which is relatively independent of the underlying operating system may not need regular updates. For example, a small company with a limited IT budget may be perfectly happy to purchase some second-hand licences for Microsoft Office 2010, and continue to use the software for five years or more without upgrading the software. If all that the employees in that company use is some basic word processing and spread sheet functionality, then their needs would be met with such a solution. Hence stable, consumer-orientated software is likely to achieve a price closer to the original cost of acquisition than a complex business application for these reasons.
6. How critical the software is to business operations
Similar to the point above, buyers will be less likely to purchase software which is business critical, and for which it is desirable to have a trusting relationship with the software publisher. This is not to say that buying software second-hand excludes a positive relationship with the software publisher (especially where ProCADIS has partnership agreements in place). However, at the time of writing this FAQ, second-hand software is a relatively new concept which is disrupting software publisher's traditional business models.
The factors above, and perhaps others, will influence the desirability of a software licence placed for sale on the Digital Exchange. At ProCADIS, we have built models to try to understand these factors. If you attend one of our webinars on how to price your software, we will explain our detailed assumptions and methodology for estimating the price a software licence is likely to fetch.
Generally speaking, however, the total cost of ownership of the software over a period of between 3 and 5 years, should be at least 30% cheaper for the buyer than if the buyer were to purchase a new licence from the software vendor directly. A saving of 30% or more is likely to be enough to entice buyers to purchase second-hand. Depending on how quickly a seller would like the software licence to sell and how much revenue he or she would like to generate from the sale, the starting price of the software could be varied, but ProCADIS recommends pricing the software with this basic metric in mind. Of course, prices at which the software licence is advertised can be varied at any time whilst the software is posted on the Digital Exchange and remains unsold.