Overcaution Stalled New Sun Pricing Strategy

Sun CEO Scott McNealy said that overly cautious managers delayed the release of a new pricing strategy based solely on the customer’s number of employees. McNealy said that Sun was too late with certain products to compete head-to-head with IBM and BEA, and that simple pricing was a key differentiator. As we’ve noted earlier on this blog, technology pricing people are desperately searching for pricing concepts that customers can understand and accept, while capturing value, rather than simply being based on bits and bytes and gigahertz. Sun has struggled since the end of the tech boom, but the former Silicon Valley darling has signed up over 1 million subscribers to its employee-number pricing scheme, which gives users web-based access to a substantial software stack for $140/employee/year. I don’t know whether they’re actually making money at this level, but if they could grow the subscriber base, the numbers start to look pretty good.

So, should Sun’s manager have green-lighted the pricing project (dubbed “Project Orion”) earlier? Major shifts in pricing strategy entail risks. For the founder/CEO, the immediate risk is not that someone fires you, but for management, this is a legitimate concern. If managers were “overly cautious”, McNealy has himself to blame for not creating an environment where people could be open to the level of risk that he wanted. This is a familiar theme in pricing groups. Executives state that they want to achieve bold results, but their actions illustrate that the penalty for failure is not proportionate the rewards for success. Self-interest then pushes people into a mode of trying to protect themselves.

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