Advice on strategy: How do I price a SaaS product when there's no competitive product but demand exists?

Here is a recent query from an online forum, and my response:

How do I price a SaaS product when there's no competitive product but demand exists?

We have built a product which already got traction. Microsoft is using it on pilot basis and loving it Now a big corporate (USD 110 B) wants it and having several test runs and has finally reached price discussion phase. We didn’t plan SaaS but that’s the way forward so any suggestion on pricing it?

Response:

This is a great dilemma for a startup or small business to have. So, let us begin with a few facts and make a few assumptions

• Demand for the solution exists
• The product/solution is being used by Microsoft (a marquee client to have)
• A $110 bn big-corp wants it after test-runs
• You are making the assumption that there is “no competitive product,” which may be true.
• However, you need to research further if an alternative solution or workaround exists in the market (e.g current ways of working may include manual effort, which your solution automates).

Suggestions on the way forward

1. Estimate the “value” of your product to the end-user/client organization. e.g
1. What would it cost for them to build and support the product
2. Estimate the cost of manual workaround/alternative?
2. Use the estimate against your internal cost benchmark (what did it cost for you to build and market the product?).
1. Add an estimate of your annual cost of maintenance and support.
2. Aad a reasonable margin on top of your costs.
3. Other factors
1. Does this product give a the end-client a competitive advantage or productivity gains?
2. What is your current strategy: using the marquee clients as “case studies” to go after other clients, or use them as a cash-cow to generate ROI?
3. Are you willing to walk-away if negotiation fails?

Use data from 1. 2. and 3. to plan your strategy and begin negotiations.

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Disney's H1-B Visa saga: Storm in a social-media teacup?

On the drive back from work I heard “Disney Suddenly Cancels Layoffs For Technology Employees” on NPR’s “All Things Considered,” with interest, and a bit of amusement. To me it sounded like Patrick Thibodeau, the editor from Computerworld was taking a victory lap, explaining to NPR's Audie Cornish “about why a round of layoffs for some 30 technology employees at Disney-ABC Television Group was suddenly canceled.” 

Patrick talked about his article “A restructuring and H-1B use affect the Magic Kingdom’s IT operations” and research and also other articles that lead to Disney’s change of heart. It was the media!  

I read through the front-page NYT article “Pink Slips at Disney. But First, Training Foreign Replacements” with much interest. Having lived and worked in the offshore-outsourcing/offshoring industry much of my working life, I can relate to both sides of the sourcing equation.The Computerworld and NYT articles are well researched and capture many of the pertinent details.

To be fair, what got Disney to do a double-take and eventually agree re-hiring workers was perhaps the social media “viral effect.”  The article had all the right key words to get American tech workers rattled: outsourcing jobs, H1 Visas, job loss at a beloved company etc. This probably prompted “Sen. Bill Nelson asks for probe into visa program used by Disney (link)” 

But reading the article and follow-up actions, I was left wondering if the Disney H1-Visa saga was a storm in a social-media teacup, or a symptom of something bigger? A few reasons for this thinking

• Outsourcing is not new: American tech workers have come to accept the reality of outsourcing for the past decade-and-half
  • Business leaders are answerable to shareholders and investors. … and will use all means at their disposal to reduce costs
  • Outsourcing “non core” business operations, including IT development and maintenance is one way to reduce costs and increase businesses profitability
  • Job loss is an unintended (but real) consequence of outsourcing
  • Jobs that are outsourced by companies are very rarely in-sourced back
• Nothing new about the H1-visa debate.
  • Even going back 15 years, before the dot.com era and even the infamous Y2K problem, consulting companies were getting “foreign/guest” workers on H1 visas
  • Tech workers have been losing jobs-to-outsourcing for the past decade and half
  • Most fortune-500 companies have already sourced much of their IT development work to offshore service companies
• Politics of Immigration and H1-Visas
  • Endless articles were written and the issue debated in the past three presidential elections
  • Lawmakers have two constituencies: businesses in their districts that generate revenue (and contribute to their elections) and people (who may lose their jobs and vote them out). Balancing the two is a delicate act

Given this context, I was left scratching my head over the issues mentioned in the article: Outsourcing is already an accepted practice among fortune 500 companies. So why is the media calling this “flagrant abuse of the H-1B visa program by Walt Disney World”

(cross post from LinkedIn Pulse)