What you are paying for at $8,000 per CPU

By: Lew Cirne | Posted in: Company News, Apr. 12th, 2010

In my first post, I talked at a high level about how the direct selling model for business software generally leads to poor products, inefficient businesses, and high costs for the customer. In this post, I’m going to go into some more detail.

If you have ever purchased software from Oracle, IBM, CA, SAP or even VMWare, then you almost certainly done so by working with a direct sales representative. He or she will have visited you onsite many times. Lots of PowerPoint. Maybe a few expensive dinners.

The next time your sales rep comes visiting, take a glance at his watch. Is it a Rolex? Did he drive a BMW M5 to the meeting? Does he have a fresh tan from his recent trip to President’s Club?

Direct enterprise sales reps are very expensive – not only for their employer, but for you. A typical direct enterprise software sales rep earns well over $200,000 per year for hitting quota. The top ones can earn more than double that. For hitting their targets, sales reps get all kinds of sweet perks – the most ostentatious of which being an annual trip to somewhere exotic and expensive. Think Four Seasons on the Big Island of Hawaii at $500+ per night and you get the idea.

The next time you are presented with a half-million dollar quote, think about what you are actually paying for. It probably has very little to do with the actual design, development or maintenance of the software itself, and a lot to do with bling.

Not only is the direct selling model expensive, but the sales process itself is painful. Go try and find unit or volume pricing for APM offerings from IBM Tivoli, BMC, CA, HP Mercury, or Compuware. Typically, pricing is provided only under under nondisclosure agreement, and is custom-negotiated in a lengthy process, regardless of whether you want to buy management for 2 servers or 200. But list price for these products is typically in the $2,000-10,000 range per CPU.

Hello, Multicore.

On top of that, there’s another 18-20% annual maintenance fee.  And of course after you buy the software, you need to purchase professional services just to get the stuff working.

Four Seasons Hualalai, Hawaii

Now, don’t get me wrong; I’m all for making a profit and rewarding great people with great compensation. I also truly love salespeople. I think that the best sales people help their customers find the right product at the right price, that best suits their needs. But the fact of the matter is that in 2010, there is no reason whatsoever for application performance management to be sold by a direct sales force. If the product works well and is sufficiently easy to install, deploy and use, distribution should work entirely over the internet, and the sales team should be available over the phone to assist customers in the purchasing process, rather than a necessary hurdle to purchasing a product or service.

Steve Reyes is New Relic's only sales rep. He's a phone call or email away. He's a great guy!

At New Relic, we don’t do on-premise sales calls. Well, truth be told, I like to occasionally visit customers and prospects personally because it helps me better understand their requirements and how well we are satisfying them. I probably do one customer visit every month. In 2004 when I was the CTO at Wily, I did 4-10 customer visits a month, because that’s how the company sold its software. This meant that I had very little time to actually drive innovation for the company. Not good, when your job title is CTO.

Our pricing is on our website for the world to see. Volume discounts are built-in. If you have more than 50 servers or any questions at all, then our sales team (that is Steve Reyes) is a phone call or email away to work something out in a quick and painless process. But 90% of our paying customers purchase directly over the web, in a completely automated process. And we don’t have to send our website to Hawaii for making its numbers.