Sun’s Developing Country Pricing Policy

Sun has fired tthe first salvo in coming up with a pricing of its software for developing countries. NYTimes writes:

The new government pricing strategy will be based on a “per-citizen” model for licensing its software to federal, state and local governments of developing nations. Sun already uses a similar system for its corporate pricing – for example, it is selling its Java Enterprise software, based on Solaris and Linux operating systems, to corporate customers for $100 an employee a year. Industry executives said this compared favorably with Microsoft’s pricing for corporate software, which averages about $250 an employee a year.

Sun will start its government pricing model by selling Java Enterprise, which lets customers provide e-mail, identity authentication and other Internet services.

Sun executives said it made sense to put government functions online.

“A lot of these network services are natural evolutions of existing phone and mail services,” Mr. Schwartz said. “It’s not all that far-fetched: our government delivers mail to every U.S. citizen.”

The software will be sold to governments for 33 cents to $1.95 a citizen annually, depending on each nation’s development status as measured by the United Nations. adds:

Sun is also launching per-citizen pricing for its Java Enterprise System server software. While the company had committed to the idea earlier, it now has begun selling it according to population and how the United Nations ranks countries as more, less or least developed. Countries with larger populations and lower development pay less per citizen.

“Governments–when delivering driver’s licenses, health care or fishing permits–tend to serve massive marketplaces,” Schwartz said.

Under Sun’s pricing, Mexico, a less-developed country with a population of 100 million, would get to use as much Java Enterprise System software as it wants for a charge of 81 cents per citizen per year. Nations classified as “least developed” pay between 33 cents and 75 cents per citizen, while “less developed” nations pay between 33 cents and $1.95 per citizen, spokesman Russ Castronovo said.

WSJ elaborates on Sun’s broader strategy:

Jonathan Schwartz, a former software chief at Sun who was named the company’s president and chief operating officer earlier this year, argues that Sun has a distinct advantage over companies that don’t make their own operating systems for low-end servers. While pricing Solaris aggressively — either as a separate product, or bundled with servers — Sun can still derive additional revenue from the software to counteract the effect of falling hardware prices, he said

Mr. Schwartz, who is describing the strategy at a customer gathering this week in Shanghai, predicts that recurring revenue from software and services could allow Sun to offer companies hardware on a subscription basis or for free — a bit like the way cellphone services subsidize the price of handsets.

“My belief is in five years, customers will no longer be paying for hardware — it will be free,” Mr. Schwartz said.

Over time, Mr. Schwartz argues, the company hopes to shift its recurring revenue to two-thirds of its total from about a third currently. Other companies that cannot offer subscriptions that combine software and services as well as hardware aren’t likely to survive, he predicts.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.