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What will I Save by using Molecule?

We frequently get questions asking how our pricing model works, especially as compared to other vendors in the ETRM/CTRM industry. In answering the question "What will I Save?", we first need to understand the pricing model for legacy (or on-premise) software.

Legacy Systems

Typically, with on-premise (or even single-tenant cloud) software like an ETRM, pricing has three components:

  • Perpetual License Fee
  • Annual Maintenance
  • Services (i.e., installation)

For a mid-size ETRM/CTRM customer, let's say the license fee is $1m on a 4-year contract. This is the most negotiable part of the contract because 1) it's not where the real money is paid and 2) the underlying variable cost (what it costs to send you the software) is essentially $0.

The annual maintenance fee, however, is where the margin gets real. Annual maintenance is often 20% of the standard pre-negotiation license fee. So, $200k/year in this example. This is less negotiable because this money pays for the development team. We've also heard of this as "the money that pays for new features and bug fixes," which makes our sales team go crazy.

Services – now here's where the major cost lies. On a greenfield ETRM/CTRM implementation, services can start at several hundred thousand dollars. However, implementations typically go into the millions, or even tens of millions (not because they're budgeted that way, but because they quietly end up ballooning in scope and time). The cost is unbounded – and from what we've seen, services is typically 75% of the total cost to the customer of an ETRM/CTRM installation. (CTRMCenter has an article on this, here). This is the case for numerous good and bad reasons. But, from our perspective, the most important reason is that because of a time-and-expense billing schedule, vendors are not incentivized to keep billing for services low.

Molecule

Molecule is different. In general, users pay a single package price, plus applicable sales tax. That's it. The price includes implementation, "paying for new features," the license fee, etc.

We have a minor fee schedule for a handful of things like new users, custom reports, and re-configuration of the application – but most of our customers never pay any additional fees.

Package prices are calculated, on purpose, to be roughly equivalent to the 4-year amortized license fee + maintenance fees of another ETRM/CTRM. This takes into account that license fees are often heavily discounted for smaller customers – but the point is, we're not aiming for the lowest license fees in the industry.

What users just don't pay for with Molecule is implementation. We take on the risk of new implementations knowing that the payoff for our customers (and for us) is enormous. We are aggressive about bounding the total cost and time of the implementation – because we are incentivized to do so. We do things like:

  • Assigning an expert project manager on Day 1
  • Avoiding implementation-related travel, if at all possible
  • Figuring out what "success" means for the customer, and keeping laser-focused on that goal
  • Building tooling for our Customer Success (support & implementation) team, so that they can get their job done more quickly

This is how we create the most value. We believe that implementation costs, in Six Sigma terms, are waste (muda, mura, and/or muri). Our customers don't benefit from paying tons of money for implementation, and neither does our enterprise value.

Summary

Basically, our customers pay industry-standard software fees – but end up saving 75% of the total cost of an ETRM/CTRM because we don't charge for implementation.

SalesFeatures

Tackling ISOs and FTRs

From a development roadmap point of view, Molecule's decision to connect with ISOs and value FTRs was a bit of an outlier. We tend to have a solid understanding of what our customers want, and we use this insight to build features with wild-eyed speed and focused precision. ISO connectivity and valuing FTRs came about in a different fashion, however.

As Sameer, our CEO, and I sat in a room (OR at the table with eight execs representing one of the largest European utilities), the conversation unfolded in an unpredictable way. Deal capture and risk is our bread and butter, so we demonstrated how Molecule automates as much as possible. We believed we had nailed everything around what they could possibly need from a risk management platform, and we felt we had won the room. Our free implementation and implementation time frame (typically 90 days or less) was the icing on the cake. It was a great meeting.

Then someone asked about ISOs and FTRs. At the time, we did not have this feature. The challenge was laid out. Could we add that in the 90 day implementation for a deal to happen? As Sameer considered the industry's need for features around congestion, I held my breath. As you can surely guess, the answer came swiftly: yes.

Our in-house Development Team started banging out code before the ink could dry on the deal. Starting with SPP and PJM, we dived deep into valuing FTRs.

During the implementation process, Molecule aimed to provide support for FTRs, Virtuals, & day ahead power. The challenge landed on the lap of our SVP of Engineering, Paul Kaisharis. Speaking with Paul, he was quick to discuss the challenges around delivering our new solution: "understanding the domain terms and normalizing those terms as well as the implementation across the various ISOs." He was equally quick to discuss what he was most proud of: "creating a standard implementation that allows us to add support for a new ISO in just a few days."

Kyle McRoberts, a key member of our Customer Success team, chimed in as well, "I’d say the most challenging and rewarding part of the FTR implementation was simply the volume. Right now we have close to 7,000 paths available in Molecule, each with a peak and off peak product. The other challenge is that we simply don’t know when new paths are needed until the auction results are posted. We’ve got a process in place now to create new paths when needed (for example, over 500 today) mostly without the customer knowing they needed to be created."

Joe, our VP of Customer Success, was another integral piece in the FTR puzzle. He said, "the challenge: the large number of moving parts involved in this implementation and putting them all together working with multiple vendors as well as divisions within the client organization. What we are most proud of: implementing FTRs with a large number of paths with multiple ISOs for a big multinational company in a short period of time."

We are by no means a custom shop. Molecule builds modern deal capture and risk for everyone. Every customer benefits from our two-week release cycle with free updates and support. Paying for 'future code' is absurd to us. We love our customers. And we listen to them. We take their suggestions and look at the industry with the future of commodity trading in mind. Then we build kickass tech.

What's next? Physical scheduling. Stay tuned.

Features

The Saga of VaR

One of Molecule’s most important product development milestones to date has been releasing our dead-simple, near-real-time Monte Carlo VaR. It’s taken us years to do, unlike literally every other feature we have built.

Why? Part of the reason is that it’s a complex calculation that’s difficult to present simply, consistently, and clearly. Also, it’s both important and difficult to get right -- and to prove that it’s right.

So we enlisted the help of a superstar: Dr. Ehud Ronn, a professor at the McCombs School of Business at the University of Texas. With his help, we built a validation framework and tested our goods.

On Thursday, July 27 at 1pm CT, we invite you to join Ehud and Sameer Soleja, Founder and CEO of Molecule Software to learn more about:

  • Why it was so difficult for us to build - and to get right
  • What a "right" VaR even means - that’s a head-scratcher, we know
  • How we validated our approach and how you can validate yours
  • When Ehud will be able to actually predict the future (Molecule Release #10,317)

Our new VaR is awesome. It’ll make you want to throw your spreadsheets out of the proverbial window. Imagine--you know that your VaR is right, and you don’t have to do anything to make it so! Join us to learn more about it.

There are limited places available for this webinar, so we encourage you to save your spot as soon as you can. Click here to register.

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