At 04:38 PM 11/1/01 -0800, Daniel Webster wrote:
>This smug statement cuts like a knife into the
>little guy trying to make a living for himself as a pcb design contractor.
>Mike, I think your imagination needs to be expanded some !

While I agree, basically, with most of Mr. Webster's post, the support 
changes will not have as much effect on PCB design contractors assuming 
that Altium continues the service bureau discount that, I was told, it 
inherited from Accel. (I was an Accel licensee for many years, on their 
service bureau list, actually wrote the book on how to use Tango, which was 
still on their web site last time I looked, and they never told me about a 
service bureau discount....)

As the owner of a service bureau, I am more concerned about the impact of 
the changes on my clients and potential clients, as well as the 
consequential effect on Altium's bottom line. If Altium loses, we lose.

This is exactly why I believe that Altium should more actively consult its 
users. The interests of users and suppliers are not divergent.

Software is a different business than pretty much anything that existed 
before; the cost per unit sold is trivial, most cost is in development or 
support, and with cooperative user support, necessary support costs should 
be minimized. (I'm including bug fixes in with development, not with support.)

With software, an increase in sales volume almost certainly is an increase 
in profit, if the company is properly structured. That's not true for 
traditional manufacturing or even publishing houses. (Books traditionally 
sold for seven times production cost; that allowed margin for distributors 
and retailers plus profit for the publishers and authors. The retailer 
would get 40% of retail, a distributor might be paying 45 - 50% of retail, 
perhaps the author was getting 7%, so the publisher was left with 37% of 
retail, which was about 2.5 times cost. The publisher had the highest 
markup because the publisher had the highest risk. (It's been many years 
since I was in the publishing business, I don't know about current ratios.)

The retail, however, got the highest proportion of the retail price. Why? 
Because the retailer does the most work per copy sold.

In software, however, incremental cost per unit sold -- exclusive of what 
is called maintenance -- is perhaps 1% for a product like Protel. If we 
allocate $2000 of the current sales price of $8000 to maintenance, 
including the initial handholding of the user, That still leaves $6000 per 
copy as the real retail price of the software itself, the shrinkwrap 
package, of which $5920 or so is gross margin. That is a 98.7% gross 
margin. So software profits are far more sensitive to increases in volume 
than are traditional publishing profits.

Obviously, a certain volume is necessary to meet the relatively high 
development costs, but my point is that sales beyond that point are almost 
pure gravy.

Now, imagine the situation if a publisher demands that all sales be 
directly through the publisher. The accountants who proposed this simply 
looked at converting their roughly 60% margin to about 85%, by eliminating 
the middlemen. We'll be rolling in dough, they think. But their sales would 
plummet. Not only would they need to develop additional sales staff, the 
sales staff would not be in close contact with the buyers, as are 
bookstores. When I want to buy a book, I think of going to a bookstore (and 
Amazon is a discount bookstore), not to the publisher. When I buy software 
I most commonly go to a software seller, only with a few packages do I 
think of the software company.

Protel had VARs in most markets, and developed its business in this way. 
With engineering software, if the company is going to sell the software 
directly, it really needs a highly-developed -- read expensive -- sales 
force, to frequently visit or contact potential buyers. Essentially such a 
company is opening its own store. Many immature industries begin this way. 
Mature industries for the most part do not, because internal sales 
organizations tend to be less efficient than do organizations close to the 

Even while Protel U.S.A. did not have VARs here, officially, there was a 
policy of 50% discount for purchase of ten licenses for resale, I was told 
by Protel salespeople. So the new policy of 50% discount for service 
bureaus really represented, as a change, only an allowance of a wholesale 
discount for less than 10 copies; justified by the critical position of 
service bureaus in their contacts with clients. I may have been the only 
service bureau to notice the sales opportunity, but that would not have 
remained the situation. Selling a few copies per year, which just about any 
Protel service bureau could do, could have added perhaps $10,000 or more to 
net profit even selling at a discount, which for a small bureau is very 
significant. And Protel would be making a high margin, still, on every one 
of those sales, without *any* added risk. Plus they would then get all the 
upgrade or maintenance charges. Alternatively, the service bureaus could 
have sold at full price, possibly including a certain amount of service as 
value added. Either way the bureau essentially would be using its existing 
and developing contacts, the same contacts necessary for their regular 
business. As I wrote before, I thought it was a brilliant move. But, 
instead, I was mistaken, that was not the policy, it was only Protel USA's 
misunderstanding, their assumption that the service bureau licenses were 
the same as all other licenses, a reasonable assumption given that the 
exact same license language was included.

It was still a helpful move, for service bureaus, but not one that had much 
potential for expanded sales.

Altium is now moving away from methods and policies that were highly 
successful for it. That's a dangerous business. It has apparently pulled 
the plug on its last VARs. If that is done without proper consideration for 
the VAR's investment in unrealized sales, in developed contacts, it's 
unethical. That too worries me.

The big changes are new, and Protel, in the past, backed away from some 
announcements based on user response. I hope they are listening.

Abdulrahman Lomax
Easthampton, Massachusetts USA

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