Software Business in the Middle East

We got a phone call on support number from one of our customers. They did something with their computer and our program stopped working among other software. It sounded like a bad thing, but that was one of the best calls for the last several months. This call, actually, was even better than a call from somebody who wanted to buy our software.

The pharmacist who called asking for support told that he used to use our Drug Database all the time. Patients coming to buy medications ask him many questions about indications, precautions and so on - and this pharmacist uses the program to answer all those questions. Of course, he does not check drug details for each and every drug as he is a pharmacist and knows a lot about medications, but it is impossible to remember, for instance, what drugs out of more than 7′000 drugs registered in UAE are safe during pregnancy or breastfeeding.

This pharmacist also told he did not want to go back to the books looking for drug details as it takes too much time and he already used to spend only a few second to find the answer to his question.

When I came to that pharmacy later to fix the issues, he also told me he used the program as kind of marketing tool for his pharmacy. He said his patients got impressed when they saw that he used a special program that contains all data about drugs, and the patients consider this as positive thing because they felt this pharmacy invests money into technology to improve their work.

When we just started to sell the first version of our Drug Database, we mainly used the selling point that our product helps doctors and pharmacists to improve patient safety by checking all the prescribed drugs and generating clinical warnings and alerts if any. We did not even think about the selling point, that Drug Database might make patients come back to you again and again generating the repeat sale - now we will.

In Part I I talked a little about getting profit from consultant work in Dubai. Now let’s talk about having your own product. There are basically three main scenarios about how you define your pricing policy.

1). One License for All Versions

You sell a license and it includes all the updates including major and minor versions with the bug fix. This is scenario used , for example, by Helpmatic. It is the great tool, it is cheap, and the price includes all the updates and new versions. If you decide to sell your product this way, then you simply divide your monthly expenses by the price of on license to get a number of sales you need to have every month to pay your bills.

Although you must think carefully about what new features you include into your next version to attract new customers, it is not such sensitive in order to decide if some features will be included in major or minor version as all your existing customers will get the latest versions anyway.

2). One License for Major Version

You sell a license that includes all minor updates of the version you sell – if your customer buys version 3.0, all updates and fixed from 3.1. to 3.9 will be available for your customer free of charge. This is common scenario for a lot of software, like Vault and FogBugs. Here you get your sales from new customers and also you get some sales from already existing customers who might get attracted to purchase your upgrade package to run the latest version.

One of the important things here is that you must plan very carefully what you add for major and minor versions because new major version will not be available for all of your existing customers. If you release major versions very often, people might get upset as it seems you are trying to get as much money from them as possible for upgrades. If you release major versions too seldom, you might loose a good part of your profit.

3). One License for One Year

This is kind of subscriptions that is normally valid for one year. Good example of it is anti-virus programs like Kaspersky Lab.

You also might sell Support Package or Maintenance Plan for the entire year that includes some additional support service and free upgrades as some of the companies does – this is an addition sales point for the scenario 2) above.

This scenario is what we use in our Drug Database for the Middle East. The license we sell is valid for one year and customer must purchase a new license when the current license expired. If they do not renew the license, the program will start working in trial mode when user is able to search for drugs and see the drug prices, but he is not able to get drug details.

Those customers who have valid license will get all product updates automatically over the Internet as soon as we publish it on our web site. If they do not have Internet (and this is unfortunately still the case for many doctors and pharmacists in this part of the world), we send them updates on CD several time per year.

In our case we have a product specific for the local market, so we can sell it only in UAE, Saudi Arabia and other GCC Countries as well as the entire Middle East. Without having product specific for the market, you software business most likely is not much different from running it from US, Germany or any other place.

What I hope is that selling of subscriptions, or licenses with the validity of one year will bring us customer base that would renew the license each year – especially hospitals that integrate our Drug Database into their Hospital Information System. There will be people who will not want to buy the new license for the next year, but there will also be new customers.

Coming back to my example of a company describe in Part I with monthly expenses of $12’000 – in case they sell the license for $139 per user per year as we do, that company would need 87 licenses sold per month to cover their expenses. Beginning from 88^th license you start getting profit

Basically,  you have two major ways to start your own software company – either you provide consulting services to your customers to help them resolving the particular issue, or you develop your own product to sell it to as many customers as possible. You can of course work as consultant in the beginning until your product sales are good enough to pay your bills, but this is normally temporal thing because as soon as you get enough sales you will be busy developing new versions of your product and supporting your customers.

Living in Sweden, it might be very good idea working as consultant. You might probably charge as much as $120 per hour with today’s currency rate and I guess after all taxes you would have about $50 per hour left in your pocket. Having about 160 working hours in a month, you can earn pretty good money. Counting that probably you might get signed month or year based contract with much lower rates per hour you will still get good money.

Now let’s see what is going on in UAE. The IT market here is very different. There are IT companies that will agree to develop the stock management program or kind of CRM or ERP for you spending couple months for couple developers and they will charge you as much as $5’000–6’000 for the complete work. Simple calculation gives your about $1’250–1’500 per developer per month. I am not sure about the quality these people provide and I heard many stories about customers who were not able to find such companies in a year or so for support as they have already been closed.

The majority of the companies that charge customers so little are Indian companies – they either send the work back to India (which probably makes sense considering salary level over there) or they have developers brought form India to UAE.

Other companies charge you as much as $3’000 or $5’000 or more per developer per month depending on what you need – more complicated stuff is more expensive.

In my experience, salary of $3’000 per month is the minimum level for the developer to have reasonably good level of living in UAE. Calculation is very simple and it is also very rough:

• For the apartment in not expensive area as International City you will pay as mush as about $1’000–1’200, which together with water, electricity, phone and Internet bills will easily comes to 50% of your salary salary. In very nice areas the rent prices are almost double higher, so it is simply not affordable the salary of $3’000.
• Expenses for food take another $500–700 per month as you must likely will eat your lunch in some lunch restaurant next to your office.
• Add here expenses for car, petrol and car insurance as public transportation is not something very well developed yet in UAE.
• If you have family, it will add to your monthly expenses.
• Most likely you will not spend you week-ends sitting at home, so add here the additional expenses.

If developer salary is less than $3’000 per month, he will be forced to live in the apartment shared with other people and make many restrictions in his live to survive. This is not the way you would want to treat your developers, I believe.

In case you are a consultant firm, you need to pay salary to your developers and you need to pay the rent for your office space, your company license, insurance and thousand other things. Just for example purposes, 700 sq. ft. (about 70 sq. m.) office will cost you at least $2’500–3’000 per month.

Now let’s calculate – let’s say you have yourself and two other developers. Each of you gets $3’000 per month plus you need to pay for the office another $3’000 per month. Totally you end up with $12’000 per month. For simplicity we do not count your bills for phone, Internet, license, travel and other expenses. This money is the minimum what you have to charge your customer to simply have zero balance at the end of the month. It will end up with $4’000 per developer per month – and that might be considered too high for some of the customers, who used to get stuff much cheaper from Indian companies based in UAE with very low salary levels for their developers.

As an additional opportunity, you might work only with European or US companies and you charge about 50–70% from European or US average hour rate. It will still be cheaper for your customers, and you would get enough money to have net profit.