Magento 2 Enterprise price: GMV formula

Magento 2 Enterprise price – still good value for money?

The post about Magento Enterprise licence cost is the most popular article in our blog and this isn’t surprising – price matters for eCommerce platform selection. According recent research by Internet Retailer, value for price is important factor for 63.3% of online retailers selecting new eCommerce platform. Magento Enterprise historically performed quite well in this metric being in general less expensive than such competing platforms as Hybris, IBM Websphere, Oracle and Demandware.

With Magento 2 release many online retailers who consider Magento think about should they use Magento 2 EE (Enterprise Edition)? Is it still good value for money in comparison with other platforms and with Magento Community?

Change of approach to Magento EE pricing

Last year was very important for Magento, there were two significant events in the business history:

  1. Magento spun off from eBay and was acquired by the consortium of private equity firms
  2. Magento 2 was finally released, both Community and Enterprise editions

Magento 1.X Enterprise licence price depends on the number of servers that a merchant uses to host online store. More production application servers with Magento EE installed you use – more expensive licence you need to buy. It is quite common approach for self-hosted solutions. The price for Magento Enterprise 1.X starts from around $18K USD per year.

Another approach to pricing is linking it with merchant’s revenue, in industry it is called GMV (gross merchandise volume) formula. In this case more you sell through the platform – more you pay. It can be a percentage from the revenue (for example Shopify takes 0.5-2% transaction volume) or more elaborated formula.

And that is where Magento moves with Magento 2 EE pricing. The licence price now linked with the revenue. The formula isn’t published, merchants advised to contact Magento sales to find out the price (BTW I don’t think it is right approach, provides space for speculations). According unofficial information published in the open sources the price tiers for mid-size merchants looks like (on annual basis):

Merchant GMV, USD Licence price, USD
Under $1M $22,000
$1M-$5M $32,000
$5M-$10M $49,000
$10M-$25M $75,000

At the chart below you may see how Magento Enterprice licence cost changed over time since 2009

It probably doesn’t make much sense to use Magento EE if you turn less than $1M or at least plan to do that in the near future. General notion is that the licence is getting more expensive and the increase is rather significant for smaller merchants. Definitely every business situation is unique and probably for some merchants with many servers, but not very high GVM new model bring price reduction rather than increase. As Renato Medina posts in his blog (see references section) Magento 2 Enterprise price as a percentage from GMV varies from 0.3 to 3.2% and still quite competitive.

 

Our thoughts about Magento 2 Enterprise pricing. Why it is getting more expensive?

Taking into account private equity ownership, it isn’t surprising that Magento is getting more aggressive in the attempts to extract more value. In addition to change of Enterprise licence pricing Magento is introducing new app store, where it will take 30% commission from the extensions sold there. So looks likes the plan is 2 folds: get more money from merchants who are willing to pay for Magento 2 Enterprise. For those who stay away and decide to choose Community Edition, Magento gets some cash from app store commission. Will this plan work well?

There are several factors that makes it not that simple:

  • Magento 2 is quite different from Magento 1. You can’t easily move your extensions, customisation and look and feel from one platform to another. That means that from merchant prospective migration to Magento 2 isn’t very different from migration to competing platform, the switching cost isn’t very high
  • There are other guys in the neighbourhood who’ll happy to take Magento merchants on board. Competitors like Oracle already started to play the card that Magento Enterprise value for money isn’t as good as it used to be

Anyway, will see how the situation develops. Most probably more merchants, especially mid-size will use Magento 2 Community over Enterprise. Healthy competition (both inside Magento and with other platforms) is good. We believe that Magento is great eCommerce platform, especially for merchants who value flexibility, have unique business requirements and need more than even the best out-of-the-box solution can provide.

References

  1. The 2016 Guide to E-Commerce Platform Selection, Internet Retailer, Feb 2016
  2. Magento 2 Enterprise Edition official Release Notes – http://docs.magento.com/m2/ee/user_guide/magento/release-notes-ee-2.0.html
  3. Magento official press-release about acquisition
  4. Does Magento Enterprise worth its price?
  5. Magento 2 Enterprise Edition License Cost (blog of Renato Medina)

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