Great article, thank you for sharing. I agree with your point of view 100%. The network effect of social computing in the enterprise is a great way of articulating the argument of volume increasing pricing. I think there are two barriers to address, however, by vendors and vendors in consultation with their clients. 1) Balancing those elements of a solution that may be construed by organizations as more social-social than social-work and 2) Ensuring that the client marketing/champion is doing a good enough job to drive adoption. From our experience deploying our next generation directory solution (http://gtec.innovapost.com/), these two issues are a challenge to a volume increasing pricing strategy.

For #1, with many social applications there are often features and functionality that don’t have a hard link to business productivity. I’m an advocate of 2.0 in the workplace as I believe there are productivity (see my whitepaper Beyond Functional Contribution via the link above) and employee engagement benefits to be reaped, but we do have to be careful because some solution elements are, and will be, used for social-social purposes. If the solution has an abundance of features that drive social-social behaviour and attract users as a result, it’s a tough pill to swallow for organizations to pay more because the organizational value proposition under these circumstances because more tenuous. Those of us in the Enterprise 2.0 space would still maintain there is value, and I am one of them, but not all of our customers will.

For #2, I think we all agree that enterprise 2.0 is largely a cultural paradigm shift about the nature of work and the view of employee behaviour. So deploying these solutions in the enterprise requires the enterprise to roll up its communications, culture change, and marketing sleeves and promote the internal solution like they would their latest product launch. As a vendor, we need to help guide these efforts as they will directly impact the use of the solution. If we don’t provide clients with any help, but we want volume increasing pricing, we’re not doing ourselves any favours.

Just a few rambling thoughts as I read your article.

Warm regards,

Yes, ROI is no longer a meaningful metric. What amazes me now is how many people are judging a tool based on its “features”, which is an even less relevant concept to judge IT offerings.

In general, the argument you have set out has articulated en brouillon the thinking I have been doing about what I call ROII (Return on Investment in Interaction). For that I thank you.

Re: Adopt your client’s point of view: if your deployment is very successful, they will pay an expensive price but derive lots of value from it. Additionally, if the deployment needs to be phased to convince stakeholders of the value potential, they will also pay a matching price that will enable them to scale its use. Reversing the price structure lowers significantly the risk for the client, increasing the chances of a pilot happening.

A positive externality of such a pricing strategy, at its peak for Enterprise Social Computing offerings, is the credibility and confidence about their product projected by vendors. Nearly all are using arguments about how easy it is to engage employees, how they will want to use it, collaborate with each other, etc. So don’t limit yourself to the market pitch, embed this in your pricing and demonstrate your confidence.

I think that this is essentially the inverse of (for example) a $50 million dollar SAP implementation.

Which I think speaks to timing and attention scarcity. SAP for me is (still) an example of a transition technology, as the evolution of IT applied to business and work processes began the major move from paper to information systems in a real and pervasive sense. If you think about it, it wasn’t really that complex .. take existing processes, align them horizontally instead of vertically, strip out obvious redundancies (everyone remember the “Spot the Waldo” reengineering stuff ?), and then pour electronic concrete (SAP system) over it.

Now we are moving into collaboration applications layered over a dense-and-deep IT infrastructure (let’s leave ERP systems out of this aspect for now), applications that consist of stitching together various web tools and web services (as a generality) that lay on top of the denser, more “permanent” databases and engines. These applications ands services are becoming both more open and more integrated all the time, to the point where through “open” APIs people can plug the tools they like using into larger applications and systems. As the concept of “cloud computing” evolves, so too will the mix-and-match personalisation.

The former (and current) pricing models assumed amortization of investment over time in something more-or-less permanent (at least, assumed to be for the purposes of ROI hurdles).

With large-scale (and over time growing) participation and interactivity, the notion of value obtained and created changes, as you have pointed out.

I’ll re-read and think, and come back when I feel I can talk cogently about ROII.

thanks for this excellent piece of analysis. At my company Qitera that offers a enterprise social search platform (http://www.qitera.com/enterprise) we are currently defining our new pricing shemes and your article brings in some very well-thought perspectives.

I am also senior advisor at IT-research firm Experton Group and recommended your post to the readers of our new blog. http://experton-group.blogspot.com/2009/02/ente…

regards et à bientôt
Carlo