The paradox of Internet software pricing

Pricing is always a huge issue for enterprise applications, and I often run into vendors that seem as confused about what to charge as I am by their often Byzantine pricing structures. Recently, however, I've noticed an interesting phenomenon in pricing, at least for Internet-related software.

Pricing is always a huge issue for enterprise applications, and I often run into vendors that seem as confused about what to charge as I am by their often Byzantine pricing structures. Recently, however, I've noticed an interesting phenomenon in pricing, at least for Internet-related software. In short, the more expensive an application is, the more likely it is that a company can build such a solution in-house from standard tools.

I recently participated in a PC Week Shoot-Out on Web content management software, which can run anywhere from $50,000 to $500,000. Twice during the evaluations, IT staffers at Gannett, a publisher that is evaluating such software, turned to me and said they could do this themselves. And it's true. Using an application server, some scripts and XML, a company with capable in-house developers could build a system that approximated the functionality of even the highest- end systems.

Of course, this has its own costs, both in how much you pay your developers and in time away from other projects.

This kind of cost isn't always a problem, though. In an evaluation of a Web-based help desk system, we determined that we could get about 70 percent of the functionality of the system using free or low-cost tools that could be implemented and running in a matter of days.

This is also the case with the currently hot category of corporate portals, which, though priced in the tens of thousands of dollars, can be built in-house using dynamic Web pages and some simple database queries.

Turnabout is fair play

The funny thing is that the reverse tends also to hold true. It is beyond the capabilities of most companies to build a Web browser from scratch, but these are given away for free. Massively complex office suites are now free or cost only a few hundred dollars. And let's not forget operating systems, which are also free or practically free.

Why is this? Why are complex applications that require teams of talented developers treated like throwaway commodities while applications that are basically just integrated systems priced in the stratosphere?

It's hard to say. Perhaps it's partly because many of the vendors in this field have consulting and integrator backgrounds, where price is often a matter of how much the company can afford to pay. Also, these products tend to promise high cost savings payoffs. It can be hard to argue against a $100,000 price tag when they come in with reams of data showing the millions you'll eventually save.

Sometimes these things have a way of working out. Lots of the early e-commerce systems were high-priced until companies started to find out that the competing site they so admired was built over the summer by a college intern. This will happen with many of these applications, especially those that deal less with corporate enterprise systems.

Still, next time a vendor shows up and pitches an advanced Web-based system that's going to save you a bundle, take the time to sit down with your in-house staff and find out just what it would take to build it yourself. You may be surprised by the answer.

Where do you stand on buying applications off-the-shelf vs. doing it in-house? Share your thoughts with me at jim_rapoza@zd.com. Off the Cuff, an online exclusive column, appears Monday, Wednesday and Friday.

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