Computer Associates: an enterprise pricing model.

COMPUTER ASSOCIATES: AN ENTERPRISE PRICING MODEL

Now that the downsizing revolution is really picking up steam, pricing for so-called "enterprise" software has become increasingly troublesome. Mainframe software vendors are now selling LAN-based products; PC companies are wrestling with corporate-wide site licenses and server-based pricing. Perhaps the most difficult issue for both sides, moreover, is how to set a fair price for a multi-user license when only a handful of people in the organization will ever use the software.

One of the most thoughtful solutions we've seen lately is a hybrid pricing model that Computer Associates just rolled out for its desktop products. CA's ideas about pricing aren't just theories: As the world's biggest mainframe software vendor, CA has a good grasp of what plays well with enterprise customers--and its pricing models tend to be widely imitated.

CA starts with a simple hardware-based yardstick--the total number of PCs at the customer's site. Like conventional site licenses, the CA price list offers deep discounts (for some mega-deals, greater than 90% off list price) for buyers who commit to a company-wide volume purchase.

But then CA adds a "penetration" factor that takes into account the number of people who are likely to use a specific application. Thus, the price for a spreadsheet or word processor license ends up being significantly higher than the price for project management software or other equally specialized applications that won't be widely adopted.

CA isn't the first site license vendor to take penetration rates into account, but--to the best of our knowledge--CA is the first to build a standard penetration rate into its official rate card. That approach removes one of the most common bottlenecks to site license sales, and considerably simplifies the purchasing decision. "The key thing about our enterprise license," says CA chairman Charles Wang, "is that we only care about the number of PCs the customer has. They don't have to track users in any way."

Thus, CA's enterprise price list for CA-SuperProject (list price $895) looks like this:

Numbers of PCs   Enterprise     Average Cost   Break-Even
Of PCs           Price          Per Machine    Through Channel*
  250            $11,700        $46.80         24 copies
1,000            $37,800        $37.80         76 copies
5,000            $90,000        $18.00         180 copies

* CA says that "the cost for a 250-unit Enterprise license for CA-SuperProject is approximately the same as purchasing 24 individual copies through standard channels."

Charging $18 for an $895 product looks like a giveaway, of course. But CA knows perfectly well that the "per machine" cost is a meaningless fiction: The real question is how many PC users in an organization are ever likely to use a project management product. If CA's guess about that number is on target, their enterprise pricing for SuperProject ends up being "revenue-neutral" (Wang's term) to the buyer--and should pay off with lower administrative costs for both CA and its customers.

Charles Wang, chairman, Computer Associates, One Computer Associates Plaza, Islandia, N.Y. 11788; 516/342-5224.