An informed purchase puts you in the game.

Like personal seat licenses (PSLs) at pro football stadiums, software seats vary in price. On the surface one package may look more attractive than another - until the user "gets into the game." Learning all you can about vendor pricing strategy can help you purchase the software package that best fits your needs.

Here is a perspective on the industry from CIMdata's NC Software Pricing Report, Ver 3.

Though competition is intense, pricing is relatively stable. Sixty percent of vendors did not change prices in 1996, and 80% say they won't in 1997. There appears to be a slight trend toward increasing prices. The value of software, however, continues to increase as more functionality is added at the same price, and the price per unit of functionality will decline. Companies lowering prices tend to be CAD/CAM vendors that provide NC software. Companies raising prices tend to be the smaller, new market entries. Vendors believe the typical discount in a competitive procurement is 15%.

Market perspective

In some markets a dominant vendor is also the pricing leader. In NC software there is neither a dominant vendor nor a clear pricing leader. No vendor has more than a 9% market share, and, with more than 100 vendors worldwide, no single vendor or group of vendors can set the pricing level for the industry. NC software vendors tend to set pricing levels in relation to specific competitors within their market segment, but not in relation to a specific pricing leader. An appropriate price must provide value to the customer and create a reasonable profit for the vendor.

For the purpose of pricing analysis, the market can be segmented into two major groups: independent NC software vendors and integrated CAD/CAM vendors that provide NC software. A secondary consideration is the platform being utilized (e.g. Unix or Windows.) Vendors tend to pick two to four key competitors whose products are similar to one another and set prices relative to these products.

CIMdata believes that user companies attach too much importance to the initial software price. The cost of use, which considers all the costs of operation and the operational productivity derived from the software, should far outweigh the software's initial cost.

Pricing strategies 

There is a large fixed cost for the initial purchase NC software. Very little incremental cost seems to be associated with an additional license or seat. Consider some pricing strategies employed by vendors:

* Price aggressively to gain market share and market presence. Parametric Technology initially utilized this strategy to penetrate the MCAD market. EDS Unigraphics is now pricing aggressively in some segments of the CAM market. Gibbs & Associates helped establish its position by being a low cost vendor.

* Target a group and then price below it. For example: CNC Software states that the price of Mastercam will always remain substantially lower than that of comparable workstation software.

* Establish a single price for an entire software package. Delcam Int'l has a single price for PowerMILL and a single price for DUCT Machinist.

* Flexible pricing. Provide multiple modules so that the user pays only for what is needed. CG Tech follows this strategy.

Pricing practices

A variety of pricing structures and practices are employed in the pricing of NC software and services. These impact how discounts occur and how price changes are implemented. Pricing changes often occur in relatively subtle ways, as opposed to direct changes in individual product prices. Some of these are listed below.

* To increase revenues from software, vendors often add modules, as opposed to directly raising prices.

* Some vendors keep a constant price for individual modules, but offer packages or bundles. This approach 1) provides a packaged or bundled price that is competitive, 2) encourages the user to add additional software that is part of a package, 3) encourages the user to select a bundle at a lower unit price for the software, but a total price above what would otherwise have been purchased, and 4) maintains the price level for the individual modules.

* Quantity discounts are usually provided as a standard offering.

* Most CAD/CAM vendors and some independent vendors offer network pricing for multiple seats - priced on the number of users that concurrently use the application software.

Application pricing

Because of the difficulty in combining information across vendors, CIMdata did not attempt to tabulate the application-pricing information and/or draw pricing comparisons among vendors. However, after reviewing information from each vendor, CIMdata was able to make these observations.

* When products are offered over multiple software platforms, the price is usually the same on all platforms. CAMAX CAMAND, DP Technology Esprit, and EDS UG, for example, are priced the same under Windows NT and Unix. Cimatron prices most modules the same under Windows NT and Unix, but not all.

* For those companies offering software only under Unix, the pricing tends to be higher than those companies offering software only on a PC. For example, Matra Datavision, IBM/Dassault, and Computervision products are only offered under Unix and their prices then to be higher than those products from Surfware, Gibbs, and CNC Software that are only offered on a PC.

* Most companies that offer both Windows 95 and Windows NT price the products the same under both operating systems. Cimatron, Intercim, and NC Microproducts.

* As Windows has become the PC standard, many vendors, such as Surfware, Open Mind, and Gibbs, have dropped the DOS version of their product. Cadtech remains as a DOS-only product.

* A basic machining product can be obtained for $5000 or less. For example, CNC Software Mastercare Mill Level I and ExpertCAM from CIM-LINC are both priced at $5000 each.

* The number of individually priced software modules varies substantially from vendor to vendor. For example Delcam offers only a single product, while Cimatron has 20 individual software modules.

* In product upgrading, most companies charge the difference between the list prices for the two products.

Other research by CIMdata showed that the overall average price per seat is approximately $10,000.

New version pricing

Essentially all vendors provide new versions of the software as a component of their software maintenance agreement. Examples of this approach include Delcam, EDS Unigraphics, and Surfware. The method and price to upgrade to a new version of the product varies if it is not covered under the maintenance agreement. Some charge on a percentage basis. Cimatron and Cadtech charge 15% of the purchase price. Open Mind's charge is 20%. The SDRC/CAMAX fee to upgrade is 25%. Some charge a flat fee. NC Microproducts charges a flat fee of $500, regardless of the extensions. Engineering Geometry Systems charges $495. Metalsoft provides a trade-in credit for the current version when users upgrade to the new version.

Standard discounts

Most companies provide a quantity discount. In some the reseller handles the discount on a case-by-case basis. In other companies, a standard discount schedule based on the number of software licenses purchased is available. The discount structure often starts at unit two.

Packaging and bundling are also extensively used as a vehicle for discounting. For example, SDRC/CAMAX provides the SmartCAM Classic product, a package for production milling and production turning. The price for Classic is significantly less than the combined price of production milling and production turning purchased separately. CNC Software provides a series of product bundles that, in effect, provide the software at discounted prices.

In addition to the standard discounts provided, many vendors competitively discount on a case-by-case basis to obtain new business.

Network pricing

Some companies offer a network pricing option. Network pricing applies when multiple users, running the same application software, are utilizing multiple PCs or workstations connected to the same local area network (LAN). In this case, networking software accounts for the number of concurrent users at one time. By so doing, the customer purchases a number of concurrent licenses, as opposed to a separate license for each individual workstation. This clearly permits the user to purchase fewer licenses than the total number of seats available. Companies currently offering this option are usually CAD/CAM vendors and/or Unix-based vendors. PC-based vendors then to not offer this option. Examples of companies providing network pricing are SDRC/CAMAX, Matra Datavision, Deneb, Delcam, PTC, and Computervision.

As NC programming increases and LANs become more common, the number of seats per company will increase and the number of casual users will also increase. In this environment, providing network pricing will become a mandatory requirement for a NC software vendor.

Most companies will provide a site or enterprise license for a sufficiently large number of seats. This would be a special price beyond that provided by the standard quantity discount schedule. Essentially all companies establish a price on a case-by-case basis.

The pricing method and the actual price of data translators such as those for IGES, DXF, etc, vary considerably. SDRC/CAMAX, Surfware, CIMLINC, CNC Software, and Delcam are examples of companies that do not charge separately for data translators. Some companies like IBM/Dassault, Matra Datavision, Computervision, Cimatron, and Gibbs price data translators separately.

The price of universal post-processor generators varies considerably among the vendors. Some companies such as SDRC/CAMAX, DP Technology, Open Mind, CNC Software, and Delcam include internally-developed universal posts with the system, or in the software package. Some companies, such as Parametric Technology, license their post-processors from third-party vendors and then remarket the product under their own names. Other companies refer sales of post-processors from vendors such as ICAM Technology and Intercim.

Most vendors provide a software maintenance service that includes routine product updates, code correction, bulletin board service (BBS), documentation, and call-in support. The distribution of the frequency with which vendors provide product updates can range from monthly or less to every 18 months. Half of the vendors now provide updates on a six-month cycle. Clearly, as the time between the new feature releases increases, the amount of feature content contained in each release should correspondingly increase.

Software warranty periods range from 3 to 12 months. Seventy percent of the companies now provide a three-month warranty, 10% provide a 6-month warranty, and 20% provide a 12-month warranty.

The NC Software Pricing Report, Ver 3, authored by Alan M Christman, partner and vice president of CIMdata Inc, Ann Arbor, MI, details pricing strategies, policies, methodologies, and practices of leading vendors in NC software. It is available for $1595 plus shipping. It can be ordered through CIMdata at 3909 Research Pk Dr, Ann Arbor, MI 48108; phone: [phone]; or fax: [phone].