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To: cm who wrote (935)	11/10/1998 9:36:00 AM
From: Mohan Marette	Respond to of 2339

cm: You mean that article about SAP/CPQ fiasco in New Zealand? I don't recall now but I think it could be from Computerworld.If I find it again I'll let you know for sure. I hope i2 takes advantage of the negative publicity SAP seems to be getting lately.Anyway for what it is worth I have send them these articles (as if they didn't know) hope they move in quickly for the kill 'cos it is not every day one finds such opportunities.

To: cm who wrote (935)	11/10/1998 11:01:00 AM
From: cm	Respond to of 2339

New Pricing Schemes... Here's an 11/9 Computerworld article about per-seat pricing vs. value-based pricing models. NOTE: In the value-pricing game, ITWO has a considerable leg up. They actually have a methodology which identifies the best and quickest sources for ROI. FURTHER NOTE: This COULD lead to somewhat unexpected bursts of revenue... i.e., if ITWO pursues this value-pricing model on more than just a handful of deals. Unfortunately, I have no way of knowing IF they have done these deals or WHEN they might do these deals. New fee plans promise flexibility Craig Stedman ERP and supply-chain application vendors increasingly are pitching new pricing schemes that base license fees on a buyer's revenue, total employee head count or even the financial return expected from using the software. But the reaction of software buyers has been decidedly mixed. So-called value-based pricing often requires companies to kick in extra payments if their revenue — or number of employees, in the case of human resources applications — surpasses negotiated levels (see chart, page 104). However, they don't typically get money back if the opposite happens and their business shrinks. For application vendors, valued-based pricing erases the need to keep tabs on whether customers are exceeding the number of users who are paid for under user-based contracts. But some users suspect that it also can be a way for vendors to get at more of their money. PeopleSoft Inc. and I2 Technologies Inc. have been pushing value-based pricing models for more than a year. Now, rivals such as SAP AG, Baan Co. and J.D. Edwards & Co. are flirting with the idea as an alternative to license fees based on the number of users given access to an application. TRADE-OFF WORTH IT Some information technology executives who have signed value-based deals said they can live with the prospect of extra payments in return for not having to worry about how many users are tapping into their enterprise resource planning (ERP) systems. User-based licensing is getting more complex as applications are opened up to employees who use the software infrequently, they said. Others, though, are throwing value-based proposals right back in the faces of their vendors. For example, SAP confirmed that it backed away from incorporating value-based pricing into the cost of its new data warehousing software after a half-dozen R/3 customers complained about the idea. Amoco Corp. was one of those customers. Steven Grossman, manager of SAP implementations at the $35 billion oil and gas producer, said SAP sent up trial balloons about tying the price of the Business Information Warehouse software to Amoco's revenue or to the number of barrels of oil it ships. But executives at Chicago-based Amoco viewed that as an attempt by SAP "to find a creative way to extract greater revenues from its installed base," Grossman said. Amoco didn't like the idea of paying more to SAP just because business happens to improve, he added. Even PeopleSoft users with value-based contracts aren't entirely thrilled by the concept. "We call it escalation pricing," said Roby Shay, director of IT at American Century Investments in Kansas City, Mo. "It might be more fair if they shared in the downside if you [had] a bad year, but it doesn't seem to work that way." Users who do a better job than other customers of exploiting the software "are going to pay more than their fair share" as a reward, added Eric Bur, chief accounting officer at American Century. The mutual funds company got the last user-based deal that PeopleSoft handed out on its financial applications, but the contract has since been pegged to American Century's revenue. American Century has learned to live with the idea, Bur said. "We had our say [with PeopleSoft], and then we moved on." PeopleSoft officials said buyers can tie pricing to the performance or head count of business units if the software is being used by only part of a company. "We're not trying to gouge people," said CEO Dave Duffield. "We're just trying to make it easy for the customers." Jim Prevo, CIO at Green Mountain Coffee Inc. in Waterbury, Vt., was won over after initially showing some skepticism. PeopleSoft's up-front price was higher than user-based rival bids, he said, but it was projected to be a better deal over three years because the coffee maker could add more users without buying extra seats. And because Green Mountain Coffee's revenue has to grow tenfold to trigger an extra fee to PeopleSoft, "we have a long way to go before we have to go back and give them another nickel," Prevo said. Despite its experience with the Business Information Warehouse customers, SAP said it is still considering using value-based pricing with some of the new business planning and front-office applications that are being developed as companions to the German company's flagship R/3 software. Baan and J.D. Edwards also said they are treading lightly and proposing value-based pricing only for certain products or customers. ERP rivals Oracle Corp. and Lawson Software Inc. continue to price strictly on a per-user basis. "We've surveyed customers on this, and they [have] sent us very clear signals that they don't want to [switch]," said Mark Galloway, vice president of strategic planning at Lawson.