How many different pricing options are there and what are they? Calculate the price of each of the pricing options (show how you arrived at each of the options in detail) Exhibit 1 Projected Market Volumes by Segment (in units) 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2001 50,000 200,000 250,000 2002 70,000 205,000 275,000 2003 High Performance segment Basic segment 92,000 Basic segment (Units) 210,500 High Performance segment (Units) 302,500 Total Estimated Market for Servers (Units) Exhibit 2 Test Results from PESA Software on Tronn Servers on a Variety of Application Types a, b Atlantic Internal Performance Testing Results July 22 2000 Application Tested High Performance/Computer Intensive Workloads (e.g., running complex scientific models) Graphics Applications (e.g., creating custom graphics/videos) Enterprise Applications (e.g., supply chain management) e-Mail Applications (e.g., Microsoft Outlook, Lotus Notes) File Sharing (e.g., shared storage and data backup applications) Web Services (e.g., running websites such as www.espn.com) Tronn with PESA 180 280 264 341 812 2222 Tronn without PESA 187 281 254 300 404 542 a The performance results above capture the test output that Jones's team received when evaluating the Tronn server running various applications both with and without PESA software loaded. The ordering of the applications in Exhibit 2 is from the most complex server application to the least. We note that the numbers appearing in the two right-hand columns per se are not important for this case. Rather, it is the ratio between the results with and without PESA that is most meaningful. Thus, a score of 200 with the PESA in relation to a score of 100 without the PESA means that the server running PESA is performing at the level of two standard Tronn servers. b As stated in the case, the PESA was specifically designed to make frequently requested information (e.g., files, data, pictures, etc.) extremely accessible. This means that those applications that require frequently requested information (e.g., web servers that just show the same web page to everyone who visits the website and file sharing) ought to benefit from having basic servers loaded with the PESA. In some applications, there is less repeated information so the benefits will not be as pronounced (e.g., email and enterprise applications). In other applications (e.g., graphics and high performance applications), loading the PESA onto the server can actually slow down the server because scarce computing resources have to be diverted away from the complex, unique calculations to run PESA; therefore, PESA may have detrimental effects when loaded onto high performance servers. Exhibit 3 Salient Pricing Information COST INFORMATION (per server) Basic Server High Performance server Atlantic Computer Tronn (Basic) Radia (High Performance) Ontario Computer Zink (Basic) Other customer expense information: Electricity (annual cost) R&D Costs for Atlantic: $250 $400 Price per Server $2,000 $11,000 $1,700 Cost of Application Software Licenses PESA Software development costs = $2,000,000 $750 $750 Cost per Server $1,538 $7,586 $1,214 Labor (# of servers an "administrator" can manage) Cost of Electricity: Charge for heating and cooling servers, etc. Cost of Software Application Licenses: Assume application software is licensed "per server." The average per server application software license is $750. Examples of Application Software are supply chain management software, customer relationship management software, web application software. PESA is a software tool, not application software. Cost of Labor: A server administrator's annual salary is $80,000. 40 20 Exhibit 4 Customer Profiles Sample "Web Server" Basic Server (New SME) Customer Profile: Customer Name/Size: DayTraderJournal.com (15 employees) Address: 11325 Magic Bean Drive, San Jose, CA Business Description: With the increasing popularity of day trading fueled by the growth of the Internet, Day Trader Journal has identified an unmet market need for providing training information and tips to prospective day traders. Day Trader Journal online will generate revenue by selling advertising space to other companies who are attempting to reach the day trader market. Server Need: Top 3 Requirements: Customer Name/Size: Address: Business Description: Sample "File Sharing" Basic Server (New SME) Customer Profile: Server Need: Top 3 Requirements: Web servers to host the company's new website, DayTraderJournal.com, where day traders can review articles and relevant training information. Look Sharp Advertising designs customer-facing marketing communications materials such as brochures, websites, and advertisements. It works primarily with business clients building integrated marketing communications programs. File servers to help layout designers share graphics, text, and layouts. (i.e., ranking of "key buying criteria" for basic server purchase) 1. Minimize our possession costs 2. Make highly requested information among employees readily available (e.g., graphics and images) 3. Availability of top-notch post-sales support Sample High-Performance Server Customer Profile: Customer Name/Size: Address: Business Description: (i.e., ranking of "key buying criteria" for basic server purchase) 1. Minimize our acquisition costs 2. Minimize our possession costs (i.e., total cost of ownership) 3. Allow our website to process many information requests Server Need: Look Sharp Advertising (65 employees) 580 Madison Avenue, New York, NY Human Genome Institute for DNA Modeling and Mapping (HGIDMM) (100 employees) 100 Massachusetts Avenue, Cambridge, MA HGIDMM is attempting to map the human genome and model the potential effects of various experimental medications on humans. With the increasing expense of medical trials, big pharmaceutical companies are looking for better ways to evaluate the potential efficacy of new drugs before going to trial. HGIDMM wants to help these companies expedite the process and thereby reduce new product development costs. They currently own Radia perform complex, e-time model simulations of the effect of medication on individuals with various DNA specifications. Top 3 Requirements: (i.e., ranking of "key buying criteria" for high performance server purchase) Capable of maximizing speed of mathematical computations in complex model simulations. 1. 2. Availability of outstanding customer support (24x7) 3. Flexible payment terms