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What are you paying for when you buy social collaboration software?

We recently had another chance to learn what one of our competitors is charging for their product, with a fairly comparable set of features.

It raised the question about what people are paying for when they buy social collaboration software, and why some companies charge so much more than we do for Communifire.

We came up with a few ideas. 

A few weeks back our sales team gave a demo of Communifire, our business collaboration product, to the IT team of a multi-million dollar MNC based in Germany. The IT director of the company was quite impressed, but told us that they have already signed a deal with one of our competitors (Jive Software, if you must know, but you likely would have guessed anyway given the details below) but still wanted to check us out. He was shocked to know the price difference between Communifire and the other offering. The company said our competitor was charging a minimum of $85,000 USD/year for self-hosted licenses, more than 8 times more than Communifire.

Given the fact that Communifire has almost the basic same feature set, this price difference was quite puzzling.

The IT director asked us to give a trial demo so that they could compare the features side-by-side. And after a few weeks, he came back to us saying that their team found Communifire more user friendly and well-suited to their IT needs. He said he'd raise this issue with the top management and ask them to re-consider. Though we were pleased with the positive feedback he sent us, I started wondering why would a company pay tens and hundreds of thousands of dollars to a "giant" in enterprise collaboration space when they can get the same features and often better support at a much lower price point.  

You're paying for marketing.

Most of our competitors are publicly traded companies that have all sorts of pressures that privately owned companies like Axero don't have, pressures that push up prices. Naturally they are much more desperate to achieve extravagant profits, increasing quarter on quarter. So just as soon as they are done selling you, they are off trying to sell ten more people like you. Ironically, even with their high prices, many of them haven't achieved profitability. Meanwhile Axero has remained profitable consistently since we released Communifire in 2009, with our budget-friendly pricing model.

We've done it by focusing on one customer at a time, realizing that our success was tied to their success. 

We haven't spent much on marketing or advertising, while our competitors -- being desperate to get your attention -- spend millions a year, expenses they have to pass on to their customers if they are to have a hope of achieving profitability.

This advertising does provide some value to customers, by making it easier to find a solution ... and making their brand the safe choice (a person rarely gets challenged for choosing the most advertised product).

But how many tens of thousands of dollars are these worth to you? And how safe is the choice if the company is putting most of their resources into marketing instead of into the product?

The larger the company you work at the more concerned you are likely to be about choosing another large company with a safe brand ... and the less concerned you may be about the product itself. It's just the nature of most large companies and their internal politics and decision-making. This is why we've always focused our attention on the small to medium-sized companies. We'll help any large company that comes along and give them the great deal, great product, and great support any of our other customers enjoy, but it simply isn't worth our time to go after them. It costs too much, costs that we'd have to pass on to our smaller customers.

Even as we consider doing more marketing and advertising we are conscious of the need to do so strategically (and respectfully of your time and attention) ... to avoid incurring costs that we'd have to pass on to our customers. We can't compete against the millions spent by our competitors, which focuses us on targeted and more meaningful messages. We'll benefit from all the hype our competitors have raised about social collaboration and then move beyond the hype to explain how to use social collaboration in the real world. We have plenty of experience in this area, having focused on helping our customers solve their challenges. We feel bad that our competitors' customers are paying for advertising that benefits us, but there is little we can do about it. 

 

You're paying for research and development

Although you bought and installed the product as is, based on the features today, you likely gave a thought to the ability of the product to keep up with your (mostly unforeseen) needs into the future.

Some of what you're paying today goes toward this as well.

In the case of Communifire, part of the reason we've been slower in our growth to date is because we've been focused on building a thoroughly robust foundation to build off of ... to keep future development costs low.

Meanwhile, many of our customers have been more anxious to add features that you'll check off in your evaluation of product choices and have neglected the core technology choices. This increases their costs of future development compared to the incredible flexibility of Communifire, which is now ready to build up and on to (ask any of our partners and customers adding -- or having us add -- their own custom functionality using the Communifire platform).

Research is another area where we've almost accidentally stumbled into an incredible cost-saving business approach because of who we are and the company we wanted to work for. Because we have always worked closely with our customers, and because the product itself is designed to be responsive quickly to changing needs of our customers, we don't have to spend a lot of money and hire a lot of experts to predict what you're going to need (with enough lead time to build it for you) and then convince you that you do, in fact, need it.

We seem to be more social with our customers than our competitors are with theirs, so we don't have to spend (and pass on) money on developing relationships with analysts, hiring experts, paying for polling and surveys in order to understand them.

We just talk to our customers, partner with them in a sense, and build what they need ... instead of what we tell them they need. And we're looking to be even more responsive in the future, becoming closer, not more distant to them as we grow with them.

 

You have a choice

We know you have a choice. And I'm sure that you are aware of this too.

We offer one mix of features and business model and our competitors offer their own variations.

If you find value in the extra costs associated with the other products, then they are likely a better option for you.

We won't begrudge you for that.

We're glad you found us however, so at least you can make an informed decision about what you are paying for.

Your Turn

  • What do you think you're paying for when you buy enterprise software?
  • What kinds of things do you expect from the company you buy it from?
  • Why do you think a company would pay tens and hundreds of thousands of dollars to a "giant" when they can get the same features and often better support at a much lower price point?

I want to hear your thoughts. Share your story in the comments below.

Tim Eisenhauer
Written by Tim Eisenhauer

Tim is president and co-founder of Axero Solutions, a leading intranet software vendor. He's also a bestselling author of Who the Hell Wants to Work for You? Mastering Employee Engagement. Tim’s been featured in Fortune, Forbes, TIME, Inc Magazine, Entrepreneur, CNBC, Today, and other leading publications.

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