Activity-Based Costing 129that this was how software companies made their money. Once they captured a
customer with an installed software system, that client was treated as an annu-
ity. Every update required an additional payment to move each installed cus-
tomer to the new system. They all agreed that this would never change.
The golf round continued, as did the complaining about both work and
golf. It was not until later, over libations in the 19th Hole, that they realized
this could be a real opportunity. Dave was convinced that his customers would
be more than willing to outsource their transaction-processing headaches. If a
company could provide an integrated service that would perform all the tasks,
it would be a winner. A customer value proposition (CVP) that said, “All your
e-commerce transactions will be processed with the latest technology, and you
will never have to worry about a customer waiting, updating your interfaces, or
hiring and training another IT person,” would be music to their ears. Eric in-
sisted that most application service providers (ASPs), much like Carol’s hard-
ware company, were focused on selling their software packages, not on service.
They were not capable of providing such a service. Carol agreed with both
Eric and Dave—although she would try her hardest, her new assignment was
like pushing a boulder uphill. All systems inside her company were focused on
selling product; engineers designed the latest bells and whistles into their hard-
ware and avoided customer contact whenever possible. All commission systems
were based on dollar revenues; the top salespeople only sold what made them
money, high priced items. They were not interested in selling low-commission
service contracts.
Within a month the threesome was working almost full-time on develop-
ing the business model. Carol was focused on designing the necessary hard-
ware infrastructure—N/ T and UNIX servers, hubs and routers, firewalls, disk
arrays, frame relays, and the like—and identifying the staffing requirements.
Eric was researching the software offering for payment, fulfillment, tracking,
and storage and attempting to identify which systems would likely become in-
dustry standards. Dave was running focus groups with a number of potential
customers, trying to refine the CVP—exactly what should they offer these Web
merchants?—and measure their willingness to pay.
The business plan came together rather quickly. As expected, Dave
found that customers would highly value the ability to focus all their attention
on their primary activity, Web-based marketing and selling, rather than
transaction processes and the hiring and training of people involved in these
processes. In addition, the avoidance of investment in this type of infrastruc-
ture was important since capital was becoming scarce for many Web-based
merchants and obsolescence was always a problem. An additional value that
potential customers asked about involved the nature of the charge: Was it to
be a variable per-transaction charge or a fixed fee? For this type of business,
scalability was always a problem. No one knew what size system to build, but
to have a system crash due to excess demand was fatal. As a result, idle infra-
structure charges were always a problem. Many customers were ready to sign
on immediately if the charge was on a per-transaction basis.