MEMORANDUM TO: Pat Kareiva FROM: Keith Corbett DATE: April 24, 1987 SUBJ: 3.0 Software Funding Plan COPY: David Lee, Gina Pallozzi, Ron Genest This memo is in response to your request for a plan that would allow us to fund the continued shipment of 3.0 software upgrade kits. I believe there is substantial agreement to the plan outlined below. It asks both T&M and contract customers to pay for their software upgrades. Briefly, we offer three purchase options: o media charge to T&M customers o media and 60 day support charge to T&M customers (LISP only) o media charge to contract customers for priority handling of their order Contract customers would pay a media and manufacturing charge for the privilege of going on the priority list; in other words, the ones who pay, get the software first. My hope is that eventually we would have enough materials to drop the charge. T&M customers are supposed to pay for the software anyway. Back in October, Customer Service sent a letter to T&M customers (those who do not have software maintenance agreements) offering them the 3.0 LISP software for a nominal media charge of $195. We told them this was a limited offer. I propose we raise the prices and aggressively sell the upgrades. We would offer T&M customers two options: 1) a media-only charge (higher than the contract customer price), or 2) a more expensive option (on LISP only) that would include 60-day software (phone) support. This pricing scale, by the way, can be used in our program to encourage T&M customers to go on contract. The steps to this plan include: 1. Establish a price schedule for the updates. The attached schedule assumes that the customers have already purchased the 2.0 version of the software; new purchases are itemized on the Sales price sheet. [The purchase prices should go on the order form, also.] The price to T&M customers should include a 60-day informal warranty to cover software support (i.e., for assistance with installation); customers desiring contract maintenance thereafter should be quoted from the Sales price list, as usual. 2. Sales to send a letter to all customers, explaining this offer with the price schedule and an order form. 3. Gina to follow up with T&M customers to determine their interest, and if possible get committments (e.g. on open purchase orders) for as many upgrades as possible. 4. If and when sales orders result, use the expected revenue to make as many kits (print manuals and, later, buy more tapes) as possible. Using the profit that should result, we can make extra kits which we would use to update contract customers who refuse to pay, or cannot do so in a timely manner (e.g. government customers). 5. As customers pay, Gina will track the PO's and inform Sales to put together a sales order; David will coordinate with Sandi Stewart to release the shipping forms to Shipping and Materials. David and I will track revenues from this offer so that we can stay up to date with check requests to cover materials. I can't project the response we'll get. No customers responded to the October letter about T&M pricing, but several of them have called since then to ask when they can get the software. I think that they either 1) did not believe we were serious about charging them (many had been told they would get it free), or 2) the letter did not reach the right people (it went to the contract contacts, and often these are purchasing agents). There was some internal confusion over the policy that may have contributed to the lack of response. There are about 30 systems on T&M at sites that have not yet received any 3.0 software. I believe, after speaking with Gina, that we have at least 2-3 customers who would buy the software right now if we could tell them the price; and there could be 10-15 more that would be willing to pay. Even 10 LISP purchases at $500 should more than cover the printing costs to build 20+ kits. Many of the contract customers will be somewhat offended by our request that they pay for software upgrades again. Our strategy must be explained to them roughly as follows: "This is simply a nominal charge for prioritizing your order, for those customers who have an urgent need for the software; we have to recover the materials costs before we can start free contract shipments back up." When I have the materials costs per manual set, we can firm up these prices and project the number of kits we can buy, based on estimates of how many kits will be purchased. I look forward to discussing this in further detail. KMC Attachment 3.0 SOFTWARE UPGRADE PRICE LIST SOFTWARE KIT PART NUMBER CHARGE BASIS PRICE ------------ ----------- ------------ ----- 3.0 LISP (no Unix) 3137-0000 T&M media only $ 500 T&M w/support $1000 contract prty $ 250 3.0 LISP (Unix S/W) 3145-0000 T&M media only $ 600 T&M w/support $1200 contract prty $ 300 3.0 TCP/IP 3169-0000 T&M media only $ 500 contract prty $ 195 3.0 LASER1-PLUS DRIVER 3301-0000 T&M media only $ 300 contract prty $ 150 3.0 IRIS GRAPHICS 3283-0000 T&M media only $ 500 contract prty $ 195 3.0 VISTA GRAPHICS 3271-0000 T&M media only $ 500 contract prty $ 195 3.1 PATCH UPDATE 3327-0000 T&M media only $ 500 contract prty $ 195