CPU based pricing
Purchasing commercial software is a joyous event indeed. There’s nothing like the feeling of paying for something, knowing that you’re doing your part in lubricating the wheels of commerce, helping someone earn a decent living, and/or ensuring that some random family you’ve never heard of will sleep with full bellies tonight. It also gains you some sense of exclusivity, you’re now in possession of something that not everyone could get. It’s not some open source crap that some pizza faced kid splattered out, to be used by anyone mildly aware of how a browser works.
Still, sometimes the whole purchasing experience leaves a bit of a sour taste in one’s mouth. A leading source of sourness is CPU-based pricing. I personally am at somewhat of a loss as to the rationale of this methodology, and would dearly like to learn about rational justifications for it.
First, if it were a matter of more cpus==more performance==more cost, then that would make sense. Alas, that doesn’t seem to be the case. You pay for the number of CPU’s on your server, not the number you’re actually planning on using. So if your production servers happen to be very beefy machines where your app is one of many, you still have to pay a king’s ransom in per-cpu fees, even if you’re perfectly content to just use one or two of those cpu’s.
Secondly, pretty much everyone knows that an extra CPU will not give you a 100% increase in performance. So again, charging double for significantly less than double the performance seems like a bit of a scam. After all, you could just slap on another linux box and cluster the two, thereby halving the load on each, and thus getting closer to 2x performance. Granted, linux kids tend to be the cheapo poor variety of deployers, where per-cpu pricing doesn’t sting that much,as you’re unlikely to have more than 1-2 cpu’s in there.
Even more ridiculous is the sticker price on many per-cpu ‘enterprise’ products. I have yet to hear of a single entity that has paid sticker price for something like Weblogic or Websphere. In reality the price is far far lower than what the official number is, sometimes by as much as 50-70%, with a lot of extra freebies thrown in like training sessions, free developer licenses and suchlike. So why have the ludicrously high price in the first place? I suppose it’s a matter of child psychology; you’re more likely to purchase something if it’s at a very high price and you’re offered it at a much lower (but still relatively high) price. The thought of ‘winning’ and getting a ‘deal’ blinds many people to the fact that they’re still being mugged.
Of course, I’m not advocating that you commit developer suicide by choosing the nearest free pile of dogturds deposited on your doorstep (sorry JBoss fans). I just find that products that have a per server price or per user price somewhat more palatable than the arbitrary cpu charges.
October 14th, 2003 at 1:12 pm
Hani, you pay the producer’s enhanced risk of thread problems ;D
Tom
October 14th, 2003 at 1:16 pm
First post!
October 14th, 2003 at 1:45 pm
Ultimately, it’s all a matter of “what the market will bear,” but another factor may be a perceived correlation between CPUs-per-server and pocket depth. There’s a market concept — I don’t remember the name — to the effect that a seller can make more money if he divides the market into multiple tiers so that he can charge more to people who have more disposible income. I imagine that this is the rationale for Ford vs. Mercury; Plymouth vs. Chrysler vs. Dodge; etc.
October 14th, 2003 at 2:28 pm
It’s still better than what Oracle used to do, which was a price “per Mhz” of the CPU.
And since when does it make sense to charge you more if the product performs better? If I have a n-processor machine, why does that make Weblogic more valuable?
October 14th, 2003 at 2:52 pm
Dave, because (theoretically), the faster the CPU, the more people get the benefit from Weblogic, so the more they should charge.
October 14th, 2003 at 5:10 pm
“There’s a market concept — I don’t remember the name — to the effect that a seller can make more money if he divides the market into multiple tiers”
It’s called price discrimination. If possible, it can increase a producer’s profits by charging a discriminatory price that is closer to the purchaser’s expected value of the software.
October 14th, 2003 at 7:21 pm
The most insidious pricing, which is rampant in the enterprise software arena, is called “value pricing”. You know if you are getting value pricing when you ask “how much does it cost?” and the salesman responds “well, how much is your budget?” Value pricing means (literally) extracting the maximum value (cash) from the customer. It’s kind of like the software mafia.
FWIW – At Tangosol, we chose to do per-CPU pricing, and we publish our prices, and it sucks, because some customers can’t afford to buy our software and others tell us (as they laugh) that they would have paid ten times as much. Frankly, it sucks, but it sucks a lot less than the approach in which every sales call is a “customer shake down”. The reason we do per-CPU is that it is the only measure that we have that approximates the “amount” of our software that the customer is using. Some of our customers run it on 32-CPU boxes, some on 1-CPU boxes, so we can’t charge “per server” (for example) or we’d be penalizing the little guys.
October 14th, 2003 at 9:23 pm
To add to Cameron’s comment, when I see a product website which says something like “contact sales for pricing”, that’s my signal that I should stay the hell away.
A website with pricing, copious information, and perhaps even a demo version, should be able to more than amply demonstrate to you that the software is well worth the price being asked. If the price has to be hidden behind a sales call, you can be sure that somebody is going to try to do a sell on you to extract the most money they can, or convince you the thing is worth something it’s not…
Colin
October 15th, 2003 at 12:09 am
I’d rather just lease software, especially since most projects won’t run for more than 2-3 years. (and then you change platforms anyway) And you can lease the latest version at all times.
It’s either that or we’ll end up being charged per workload.. or the dreaded per user system ;-(
October 15th, 2003 at 2:51 am
Hey!
What makes you think anyone using JBOSS is sorry? Who made you the judge on true developer feelings? Me and my family and friends and wannabees and others are getting sick of your endless anti-JBOSS attitude!
If you dont like the dogturds deposited on your doorstep you can always deposit your own, thats the beauty of open source!
Dont let your neighbours reaction stand between you and your streetcred!
October 15th, 2003 at 5:48 am
It gets stranger, ever heard of per-page-pricing? It is someting my pet-bile-company offers. (http://bas.scheffers.net/vgn-needs-login-exploit.html)
I also fail to see the point. It’s like buying a car and the dealer asking how many years you plan to own it and how many miles you will be driving each year.
Software is a weird thing. The first copy you create is incredibly expensive. But the second costs next to nothing. At least with hardware, you know each unit’s cost and while that goes down with volume, it’s not by that much once you get over a certain number produced. I agree with per-server license, as a physical copy needs to be on each server, but per CPU? Nah…
So for this kind of licensing, the train of though must be “those who use it more, pay more”. What I find ironic is that that is very socialst thing to do by these very much capitalist companies. Mind you, they would never see it that way themselves.
October 15th, 2003 at 5:53 am
Zealot, anyone not sorry about using JBoss isn’t sorry because they have so much time (and money) invested in it. It’s like those equipment review websites where people that actualy bought the useless, horrible gadget praise it. Would you admit to being foolish enough to drop hundreds of dollars (or much more, in the JBoss case) on a product that actualy sucks?
It’s only the people that have used better, know better.
You sound like a Perl user.
October 15th, 2003 at 8:48 am
I see mention of per-mhz pricing, but what about the comparison between a system that has, say, a single cpu of 2.4GHz, versus a two-cpu system where each is only 500MHz?
The twin processor system would attract a higher license fee in the examples quoted, but is unlikely to perform as well as the single-processor system.
It would seem that if some scheme of measuring the power/performance of the server is required – and hence the ‘value’ from the software loaded on it, then none of these schemes sound too clever. Just using the amount of memory installed would be just as good, or as bad, as counting cpu’s…
October 15th, 2003 at 8:50 am
I’m going to let you guys in on a little secret. I don’t actually pay full sticker price when I buy a car. No, really. When I’m ready to buy, I negotiate a price that ends up being lower than the sticker.
But when I, or Consumer Reports, or anyone reputable, discusses the price of the car, we talk about the sticker price. Because that is the published number. And everyone is cool with that.
Now try this with software. Whenever I mention that BEA’s full software suite costs $90,000 per CPU, I get a mob of BEA-heads whining like hysterical little girls, “But you can negotiate it down! You don’t actually have to pay full price!”
OK, well what is the publically referenceable price that we can use when discussing the product? “Oh, we can’t tell you that, you’ll have to talk to your sales rep.”
Sounds like Mafia value pricing to me.
October 15th, 2003 at 9:11 am
Corby, FWIW I think it’s Consumer Reports that prints a book that tells you how much you *should* expect to pay in addition to the list price and the invoice price.
I tend to agree with you though, most big companies get run by a mixture of bean-counters and people eager to please the financial markets (shareholders, institutional investors) and end up doing dumb-ass things that screw their customers.
But if it weren’t for those idiots, big companies would be unbeatable. Thank goodness for those morons, because it gives small companies room to start and time to grow ;-)
Peace.
October 15th, 2003 at 2:51 pm
Bas, you’re right (*I think* because your post is really hard to decrypt)!
As I am such a worthless worm, the time I spend on making Smurfs out of catpoo is not a loss of income, and can therefore never exceed the price of a real Smurf from the store.
And even if I WAS making some kind of living during daytime, I could always rely on poo-Smurfs created by some other worthless worm out there. True, I would probably have to spend some time making sure that his poo-Smurf didnt fall apart as soon as I dragged it into some serious play, but that would still be cheap compared to .. ehm… something.
Now, after spending some serious time first on my own poo-Smurt and then later on a friends really cool poo-Smurf 2K, I would never, NEVER, admit that I spent hundreds of hours on something that smells bad, falls apart as soon as I start to play with it and only resembles a Smurf when held under a wet blanket in a dark room.
October 15th, 2003 at 6:04 pm
” At Tangosol, we chose to do per-CPU pricing, and we publish our prices, and it sucks, because some customers can’t afford to buy our software and others tell us (as they laugh) that they would have paid ten times as much.”
Haha, that’s because you’re stupid. Smart companies do price discrimination, because it increases profits. And it’s actually more economically efficient, because it allows more companies to use the software at the price that’s closer to the value.