business of software: what is the best ratio of software price to required hardware?

Question

When selling a software package that requires hardware, typically dedicated hardware (could be a VM), the buyer typically has to buy the server it will run on. So the total cost of ownership (focusing on the capital expense) includes the hardware in addition to the software.

For example, a $3000 bug tracking package might need a $1500 server to run on, total cost is $4500. The hardware is 50% of the software cost, or 1/3 of the total cost.

Of course, with open source packages, the ratio is inverted.

So the question is: does it matter? At what point does hardware expense affect the sale of the software?

Answer 1

"typically" - that's an assumption.

And the cost can be more than just hardware and software if there are service or renewal fees involved. This can be true of open source as well, because a lot of companies like to pay for indemnification and services.

If you buy hardware plus operating system, the decision to go with Windows or Linux comes into play.

I doubt very much that there's a meaningful, fixed ratio. It's an interesting question, though. You'd need a LOT of data, and I don't see that it's been gathered into one place.

I had another thought in a comment below that's worth surfacing. There's another consideration that's becoming more important all the time: power consumption. Some corporate data centers can't add a new server without retiring an old one or by reducing power consumption some other way. Being able to deploy a new software purchase on an existing server is big plus. If it can be virtualized, even better.

So it's not always hardware and software. Other economic considerations, like power cost, have to figure in.

Answer 2

I have found that hardware costs rarely affect the decision.

Small companies can get away with reusing servers.

Large companies already support clusters of servers, increasingly with VM capability so it's easy for them to deploy/redeploy software to as much hardware as necessary.

Answer 3

The ratio depends on which part of the equation is the commodity part.

If you are selling a software targeting solving complex problems like air traffic control that can run on any servers, you might want to sell it packaged with the hardware for a bit more, but since the hardware is the commodity and can be obtained from other vendors, the price ratio will be heavily skewed towards the software.

If on the other hand you are OEM and your goal is to sell your hardware, you can use the software as the commodity to bring more value to your offering. For example, you can sell high-endserver machines and add a preconfigured LAMP stack to make your offering better. In this case, the price is heavily skewed towards the hardware.

Answer 4

Why require hardware at all?

If hardware prices are a big breaking point in your sale, perhaps offer a hosted solution and factor the price into this service.

"Software As Service" might really help you makes some sales for customers with limited infrastructure.