Search Vendor Pricing Models: Top Techniques for "Right Sizing" the Final Invoice

Do you remember your Dad telling you not to fill up on the free bread at the restaurant because "that's how they get you!" ?  We're generally a bit more trusting than your dear old dad, but we are still talking about software sales here, so being a bit more educated couldn't hurt.  Like any industry, some vendors are very creative when it comes to their pricing models.  Of course if you're reading this and you happen to work for a vendor, we're not talking about your employer, we're obviously talking about those other guys.

Many vendors make a guess about how much money you can probably spend, regardless of what you tell them.  Then they make their initial bid based on their own estimate  If you see the number and pass out, they offer smelling salts in the form of "special discounts" they just remembered you might be eligible for, and they chide themselves for not having thought of this before.  Preserving the deal at a lower margin is usually better than having you walk out the door. (An aside: if you look for "flinch test" on the net, most of the content tells the sales guy how to deal with your response so they can maintain their price! Check out the posts on  sales2.com and on eyesonsales.com!)

But there's a flip side: what if they show you the initial number and you don't pass out? Then you passed their "flinch test", but to the vendor, this might mean they left money on the table.  This is where the creative models come in so darn handy! ("You do want undercoating with that, right?")

Read on for our cheat sheet of creative search engine pricing "metrics" ...

We suggest you start off by just asking your vendor:

"We would like to understand how your product is priced?"  And tell them that you do expect them to make money, that you don't fault them for that: you just want to understand how much, and what your options are.  Most vendors use at least a few of the following metrics, and rightfully so - they need some way to price their product or service.  Ask them about what factors affect pricing, and for each item, ask them to explain whether this is a factor in pricing or not.  And you can ask for an estimated cost sheet over the first 2 to 5 years.

Some vendors will not show you exact line item pricing - they would prefer to understand what you need - and then quote a fixed price - we don't fault them for that and it's your choice about whether that's acceptable.  In such cases, you might ask for quotes on a couple scenarios.  Pricing models for hosted solutions are likely to use a different set of these.

Pricing by Data

Number of database records?  (or documents)

Size (in Gigabytes) of source data?

 

By Activity

Queries per second?

Peek vs. Average?

Does the display of additional results elements such as taxonomies or facets constitute an additional search?

 

By CPU / Machine   (may not be applicable for hosted)

Number of machines in production?

Number of physical CPUs or cores in each machine?

Machines in Dev and QA farms?

 

By Search Feature

Which features are at an extra cost?  Tell them to include all features that would not be enabled on the basic system.

Good candidates for extra cost options

• Some vendors charge more for even basic features like "stemming" (matching the singular and plural form of words) or using a Thesaurus.  We find this particular practice a bit frustrating because when it's not enabled it gives search a bad reputation, and at least 2 popular vendors pull this stunt.
• Additional language packs (may offer volume discounts for buying all the languages in a particular region)
• Additional connectors to databases or CMS repositories
• Optional expert user interfaces (others include these all at no extra charge!)
• Predefined industry taxonomies or thesauri (this almost always costs extra)
• Business Console or Meta Data UI (often included in the base price)
• Special business logic for suggesting specific results or up-selling / cross-selling, "customers similar to you also liked...."
• Reports, or Advanced Reports.  We're finding that hosted vendors tend to include more of this by default.
• Other big ticket items like mobile web access, interactive voice response, federated search.  These are advanced items and you should expect to pay more.

 

What type of general license is it?

Typical types of license?  (perpetual, term, hosted, etc.)

Typical deal size?  Total, and for search component?  (they may not disclose this)

 

By Application and/or Site

If the engine is used to drive more than one web property

If the engine is used to drive multiple applications, such as customer facing search and an integrated Customer Service search app, would this increase the price?

 

Support and Maintenance

Is maintenance for 5x8 service (Mon-Fri, normal business hours) ?

Is there an extra cost for Premium Support, for getting support 24x7?

Can you actually initiate a phone call, or must you start all transactions with email?

Who decides how serious your problem is, you, or them?  Have they told you what their definition of "down" is?

What is the renewal date for maintenance?  On delivery of software, or months later when it goes live?  (from a customer standpoint, the latter is better!)  And is the first year included in the base price?

 

Professional Services and APIs

Pricing by the project or by the hour/day?

Approximate rate per day?

Is there an extra cost for getting the API's your developers may need?

Ask for a training budget worksheet

Average days for similar implementation?

Typical New Customer to Go Live Timeline

And a few final points from Miles' classic rules:

• Negotiations become easier, from a customer's standpoint, towards the end of the quarter or fiscal year.  We've heard of some really great deals booked on December 32nd!
  
• And no matter what they say, everything is negotiable!  This is software, not a tangible physical product, so by definition they do not have fixed costs.  Professional services is still a finite resource, but ironically some vendors will negotiate more on that than software since it makes the books look better.

A vendor with a good pricing model and confidence in their product's value is likely to still be around when you need them, so don't expect to totally low-ball them either; they may suggest you consider a cheaper (and less capable) solution.