Saturday, July 26, 2008

Microsoft Amalga Pricing and Licensing

Several readers asked to comment about the pricing structure and Total Cost of Ownership (TCO) for Amalga (aka, Azyxxi). I am still in pricing negotiations with Microsoft and of course need to respect the confidentiality of those discussions, so can't go into any detail, but will offer a few general thoughts, all of which I have shared with Microsoft.

Utility vs. Legacy Pricing Models: Unfortunately, I believe Microsoft is missing an opportunity to establish itself as a forward thinking leader in a new vertical, with a new product-- a prime greenfield opportunity for innovation-- by offering a traditional, legacy licensing model for Amalga. I have been encouraging them to offer a utility, pay-as-you-consume model which, I believe, would ensure more, not fewer customers. The licensing model they are offering now is very typical of transaction systems-- i.e., big up-front fees with smaller multi-year commitments. However, Amalga is more akin to a business intelligence tool than a transaction processing system, therefore, predicting the total adoption rate is very, very difficult for Amalga. The scope and adoption rate for transaction systems, like a PACS, EHR, or ERP system, are relatively easy to predict-- count the number of users and divide by the length of the implementation plan. The implementation timeline for transaction systems is usually driven by very clear organizational goals, i.e., "At least 90% of our employed physicians will be using our EHR within three years." For BI tools, counting "users" is very tricky and full of uncertainty and organizational cultures are much less likely to establish corporate goals around the adoption of a BI tool, so committing to a multi-year adoption rate in a high-dollar contract is risky business. Amalga and BI tools are perfect candidates for utility, Software-as-a-Service licensing.

Licensing Costs vs. Solution Costs: Though I see signs of awareness and change, Microsoft is still selling software licenses vs. total solutions. CIOs are left trying calculate the true Total Cost of Ownership-- comprised of hardware, software, implementation services, and support services. In my negotiations with Microsoft, offering a total solution cost for Amalga has not come naturally for them, but we are making progress.

Build vs. Buy: We are building an Enterprise Data Warehouse (EDW) at Northwestern and making great progress (keep my fingers crossed). Since the project started 18 months ago, we've spent only $1.4M on everything-- hardware, software, and labor-- and we've been generating useful analytics and other unique services from the EDW for at least 6 months. Recently, and into the foreseeable future, we will be focusing on developing the tools to easily interact with the content of the EDW. These tools, I believe, will soon rival and potentially surpass much of the functionality of Amalga. In my discussions with Microsoft, our strategy is to plug the Amalga application layer into our existing EDW data content layer-- but my EDW development team is making such great progress, building lean applications over the top of the EDW, I'm beginning to see less and less of a role for Amalga. At this pace, our total EDW "Build" costs will be much lower than the software licensing fees alone for Amalga. That said, Amalga still offers a much richer user interface than anything we will develop in the near future, but that rich user interface is less valuable for Northwestern where we already have a large amount of data integrated in our EHRs-- Amalga's strengths are best revealed in organizations with many disparate clinical diagnostic systems and no EHR.

People are Buying: Yesterday, Microsoft shared the names of several new and significant customers for Amalga, all of which will soon be announced publicly. Despite my reservations about the licensing model and total cost of ownership, other CIOs seem less concerned, and at the end of the day for Microsoft, paying customers definitely trump Dale Sanders' Quixotic opinions. ;-)

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