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Advice about how to price hackoff

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Reference no: EM133649420

Existing virus-protection programs rely on virus databases that constantly need to be updated as new viruses emerge. A typical virus-protection site license costs $3,000 ?per year for sites of less than 350 ?machines and must be updated regularly. Regular updating of the databases costs around $60 ?per computer per year. Furthermore, even with regular updating of the databases, there is a possibility that unaccounted viruses will infect a company's computer systems. Virus-protection experts estimate that with current virus protection software, the probability that a company will experience one complete system breakdown because of a virus within one year is 8%. ??Of the 8% ?of companies that experience a system breakdown, 25% ?also experience a second breakdown sometime thereafter. The probability of more than two breakdowns is virtually zero.

A complete system breakdown, which typically lasts one day, would cost $35,000 ?to a retail company with 175 ?machines and $90,000 (in profits from lost sales) ?to a typical financial services company with the same number of machines.

McBug Software Inc. is about to introduce new virus-protection software called HackOff. HackOff is based on a "mutating-virus-simulator" (MVS), ?which according to McBug is going to revolutionize the virus-protection landscape. The MVS essentially eliminates the need to update virus databases continually. Moreover, the MVS is extremely powerful and, as a result, increases the probability of detecting infected files. Researchers at McBug estimate that companies equipped with HackOff have only a 1% ?probability of experiencing a virus-caused complete system breakdown within a year and a zero probability of experiencing more than one of such breakdowns.

While the price of a HackOff site license remains to be set, it is estimated that clients who adopt the software would incur start-up costs (excluding the site license) ?of $35 ?per machine in installation, configuration, training, etc.

Assuming no other costs of virus infection or software, calculate the economic value of HackOff over the course of one year:

Question 1. ?for a retail company with 175 ?machines running under existing virus-protection software.

Question 2. ?for a typical financial services company with 175 ?machines running under existing virus-protection software.

Question 3. ?McBug's CEO wants your advice about how to price HackOff. What do you recommend the CEO do? (Your recommendation must include a suggestion about pricing and a brief justification.)

Reference no: EM133649420

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