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:

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

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

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.)

Answer rating: 100% (QA)

PART 1 Lets calculate the total cost of running the existing virusprotection software over a year 1 The annual site license cost is 3000 2 The total c... View the full answer