Value Part Deux

I was thinking some more about the post I wrote yesterday on Apple value and it intersected with another observation I made about something completely unrelated.

For the last couple of days I have had a guy working on our house, specifically he is a metal fabricator and I hired him to make copper pieces for 3 bow front windows (like a bay window but not as pronounced). This guy is a craftsman, he comes out and takes a few measurements and then goes to work cutting flat sheets of copper, bending them, putting seams on them, fitting, crimping, and soldering everything together. I actually watched him for a few minutes last Friday and was amazed at the skill required to do this.

He quoted me $1,200 to do this work, which seemed reasonable but when he finished I was compelled to ask him if he was making any money on the project. He said “well it took a few hours longer than I expected but $1,200 is what I quoted you so that what it is” and I admit I was a little thunderstruck because I am astounded at the work he did and I feel guilty about not paying enough.

So why have I been thinking of this? Well it’s because far too often we, consumers, feel like we are paying more for less and on that rare occasion when we actually do get less for more we, or at least I, instinctively feel as though I am getting something beyond what I deserve for what I am paying. Is it not that we should be conditioned to expect value for our spent dollar? I think that’s what people in business should strive to deliver.

At NewsGator we measure our widget value on many dimensions, but one measure that I believe is important is the effective CPM of the widgets we are serving under hosted contract basis. This pricing doesn’t take into account a variable price per unit delivered, it is a measure of the price we are charging per thousand widget impressions we are contracted to deliver. Over the last year this eCPM has declined, indicating that we are increasing the unit volume of widget capacity we contract for while reducing the price, and at the same time increasing the functionality we are provided through the hosted management application.

Some people would suggest “well you have to reduce the price because the market is getting more competitive” but in actuality the market is getting less competitive as it stabilizes and two camps emerge, those that offer purely ad-based pricing models and those that are offering a hosted subscription service and ad-based pricing. We’ve also increased our client base and contracted capacity, recently closing our best quarter ever, which indicates that our pricing is not an obstacle to closing business.

I have a different explanation for the movement in this metric and it’s simply that we believe the best way to win in a market is to deliver a product that works as promised and constantly optimize it for price and performance to ensure that the client believes they are getting the best value possible from the relationship.

We have been fortunate enough to experience near 100% client renewals through 2008, and I am not hesitant about disclosing that only 1 customer in the last year has not renewed their contract with us. That makes me really happy and as we enter an uncertain macro economic environment I believe this customer satisfaction level is a real asset for us.

BTW, I’m having Dave the copper guy come back next month to replace the gutters on our roof. I didn’t ask him for a price, just told him to make sure he’s also coming out okay.

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