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Pricing a Software Product
prostoalex writes "Eric Sink from SourceGear shares his experience on software pricing. Whether you're developing open-source or proprietary software, the money has to come into the business in some form, and the article suggests several strategies as well as the pitfalls for managing software pricing. Sink claims it's tough to compete on price, dangerous to run seasonal promotions and almost impossible to avoid criticism on being over-priced."
better color
Sink claims it's tough to compete on price...
:)
Tough to compete with free on IRC, indeed!
Volume Pricing has its snag in how you handle customer Support. I didn't see that addressed (other than lightly under Tech Support), the higher the volume of sales the more need for customer support. Only so much can be down with a website FAQ. (Personally, I'm wary of products which don't come with printed manuals or a pdf with only a light treatment of the subject matter, back in the day manuals were your saviours, now they're some kind of afterthought that vendors seem uninterested in putting effort into.)
With inexpensive stuff you may lose all your profit on customer support, with pricing of support and/or a higher price nd lower volume there's less need for a large customer support team, or it grows as needed.
Granted, I've worked for people whe shelled big really big zorkmids on stuff and when it turned out to be crap, it wasn't the vendor to blame but headcount.
There's some discomforting truth to many of those Dilbert strips.
A feeling of having made the same mistake before: Deja Foobar
...is free.
He'd like to believe that the pricing follows that nice bell curve, and that would be true if there weren't a monopoly skewing the graph to nearly a flat line. MS can charge whatever they want up to a point, their demand is inelastic due to their monopoly.
I've had enough abrasive sigs. Kittens are cute and fuzzy.
Sometimes I place more value on the service I get that on the product itself (software or not). A lot of software is moving to a hosted environment, and a lot of companies are starting to like the idea. Now you can use your service from your mobile device as well as at the office. So, instead of charging for the software, charge for the hosting. Develop and open source the product, then charge people to use the service in your hosted environment.
What I want to know is, whatever happened to supply-side pricing. You know, figuring out your cost to supply, and charging a reasonable markup based on that?
It's because of this that companies have to create artificial market distinctions, and why there is the prevalance of after-market modification. (Things like overclocking.)
I know it's a bit of an anti-establishment thought, but I'm not sure demand-side pricing is ethical. The whole idea of trying to take your customers for everything you can sounds so much colder when you look at it from their side.
And on taop of that, if you're a publicly owned company, not doing so might be considered criminal...
Unless of course you run a company, and have employees to pay. In that case, you can't always make a living off of service and support.
Tech, life, family, faith: Give me a visit
The article had a rating of 8 of 9 with 197 votes before being slashed.. I'm curious to see how that changes in the next few hours. Wasn't expecting an msdn page when I clicked on it.
Recipes for geeks -- no meatloaf, we promise.
If you have a monopoly in several keymarkets pricing suddenly becomes less of a problem for you.
It was then a simple matter in Excel to figure out how to maximize our income, at what price point did we make the most money. It looked pretty much like the first chart in the article.
Then management ignores and sets a price accordingly!
You're confusing it with Beer, which wants to be free. You never actually buy beer, anyway, you only pay rent on it.
For anyone who went to see Festival Express, about a concert tour across Canada (featuring Janis Joplin, The Grateful Dead, The Band, and others) there's a great bit about some mayor of a canadian city along the way insisting the promotor let the children of his city into the concert free(!) What with all the difficulty they encountered in Toronto and the capital outlay for a train and all the venues and paying the bands (16 bands? all day concerts!) the promotor took the mayor aside and slugged him.
A feeling of having made the same mistake before: Deja Foobar
Tyler: You don't know where ive been, Lou. YOU DONT KNOW WHERE IVE BEEN!!
Hate to be the part of the money-grubbing capitalist here, but money makes the world go 'round. If all software was free, why would anyone bother developing it? I know there are great free software products out there, and I know there are ways to make money off of software other than by selling it, but making all software free really doesn't seem to be a viable option. Let me put it another way...you're a software developer making a product - the final piece of software represents the work you've put in to devloping something unique and useful....how much is this effort worth? Nothing?
...no two people are not on fire.
Pricing software is more complex than my human brain can handle. There's a stunning conclusion.
Seriously, though, he makes a lot of very good points cheif of which is asking "how much is too much?" The author also makes a good point about not selling your product for much less than its actual worth. I'm more than happy to pay a premium on a product if I think it's valuable to what I do and it has a distinct advantage over competing solutions. (Case in point, I donated $100 for Trillian before Pro was released. Why? Because I used it every day and it was much better than any of the individual IM clients.)
It's hard to really draw a line in the sand about pricing, though. I think that's the greater point to be made.
There is a difference between "insightful" and "inciteful" other than spelling.
the higher you charge for your application, the better it will be 'perceived' in the user community.
Consensus is good, but informed dictatorship is better
If you want to sell your product to consumers, you can't really charge an arm and a leg (unless your MS ofcourse). Generally I don't buy any software that runs over $60, OSes excluded ofcourse. Now if you're selling to a business, it varies greatly. For a business, a $600 license for Photoshop is practically a bargain.
So how should I price Hello World? I just wrote it in C.
Hmm, competition? No competition! You can find some software books that show you how to make your OWN Hello World, but who has time for that?
Some of those books cost 100 Dollars or more... So that I dont look like an "underdog" im gonna charge $250 dollars. Even better, I could convert Hello World, into Hello World for Workgroups, change the font to something a little more professional, and sell it for $325 plus maintenance and security fees.
Service, support, advertising, publicity, and brand-name recognition, for starters. By giving away software for free you are reducing one of the biggest barriers to entry in your market. Those who charge money for a similar product cannot compete, except by their own brand recognition and goodwill. By making a product that is sufficiently well-known you make a name for yourself which supports your business in other regards: winning development contracts, consultation, and hits to your web-site, which can be monetized with internet advertising for what can sometimes be surprisingly lucrative sums. Noone would use Internet Explorer if they had to pay a fee to go download and use the newest version each year.
Eric Sink
Software Craftsman
Craftsman?? Damned, Eric must've picked up one of those "Spam degrees".
... is to be a business that sells hardware and then provides software as a service to its customers. Especially in this position it is easy to open source things since you don't really make your income from the software but the hardware that you use it with.
That's easy. $699. : p
I'll turn into a supernova and burn up everything. Well I'll turn into a black little hole and you'll turn into string.
Don't tell people... our little secret will get out, then everyone will get their software goods off of IRC. Then the government or other organizations will take an assult on IRC... oh wait... didn't Bill Clinton pass some law prohibiting that?
- Your stupidity got you into this mess, why can't it get you out? -Will Rogers
A good price depends on your target audience.
For the average Joe: $20 or under will get impulse buys ("Not that much if it ends up sucking"); over $50 means they'll only buy it if they already know they want it; Over $250 will only get those who really need it and have done some decent research into alternatives. Over $1000 means you can guarantee that everyone will pirate it without even feeling bad ("At that price, I didn't count as a potential customer anyway").
For teens and older kids, drop those to $5, $20, $50 (yes, the average price of a game) and $100, respectively.
For business customers, the scene changes a bit. A very small business may behave like a somewhat more well-to-do average Joe. Once layers of accountability start appearing, though, the low and high categories vanish - No impulse buys, and no piracy. For that reason, as the business gets bigger, the potential price does as well, almost without limit. Keep in mind that the higher the price, the fewer your potential customer base, though.
What I want to know is, whatever happened to supply-side pricing. You know, figuring out your cost to supply, and charging a reasonable markup based on that?
You mean 20000% markup isn't reasonable?
I know it's a bit of an anti-establishment thought, but I'm not sure demand-side pricing is ethical. The whole idea of trying to take your customers for everything you can sounds so much colder when you look at it from their side.
IMHO: it only becomes unethical when you are dealing with monopolies.
In other cases, customers are allowed to take their suppliers for everything they can, and balance is maintained. Well.... if not balance.. then at least ethics.
No one has a right to their *own* opinion. They have a right to the TRUTH.
In a fair world the price of software would be proportional to the difficulty and cost of its creation as well as its usefulness.
Odd world where Linux is free and Windows is expensive, eh?
LilMikey.com... I'll stop doing it when you sto
If you're any kind of 'professional', then $600-$1,000 software is a steal.
I've spent $100 on movie making software and $50 on DVD authoring programs, and their power-price ratio is outstanding.
Imagine if you're making $60k a year off Photoshop and Illustrator. $2,000 for the software is chump change. Same for Final Cut Pro, DVD Studio Pro, Motion, Shake, and any really powerful authoring software.
Photoshop is $600, where Photoshop Elements is $60. If you need the $600, you will gladly pay it, especially when the alternative is $40 for GIMP and $100 for Paintshop Pro or something.
Consumers have PE for $60, and that's perfect.
GPL Deconstructed
Wow, a MSDN page about how to price your software? Hmm... interesting... This is just all misinformation... in reality, you price software at whatever the hell you feel like charging. Is there a MSDN page about how to create a software monopoly? I'd like to read that!
"Glory is fleeting but obscurity is forever" - Napoleon Bonapart.
Remember, this guy works for (and owns) SourceGear. This is not Microsoft.
.....
Basically, he has no monopoly. Excecially with his bread and butter products: Source Code managment.
Lets count the competitors: CVS, Subversion, PVCS, SourceSafe, Star Team,
Bad User. No biscuit!
Yes it takes a lot of work to come up with original ideas. But not so surprisingly you can give away ideas, and most people wouldn't know what to do with them. Then you turn around and charge them to show them how it works. :)
Who needs money when you can be a top poster on lkml?
</sarcasm>
Rampant Ninja related crimes these days...Whitehouse is not the exception
So you didn't read the article, your comments indicate you didn't understand the author's points, yet you're posting that he's wrong?
You're wasting bits here.
I believe that the future trend is going to be software as a hosted service service. With free software etc people are starting to get loathe to spend tens of thousands on a closed source solution that you have to do all the maintenance/install/admin/backup duties for. However I do believe there is alot of value-added for a company that has a nice product and is willing to host it for you too.
BEGIN SHAMELESS PLUG
In fact, I'm in the process of launching a start-up that does precisely this. We have an asset management/helpdesk product that is hosted/web based that not only do we do all the grunt maintenance work on, but instead of paying for version upgrades/migrations, while you're a subscriber all the new features etc are free, you're basically paying to be on the most current version of the software.
To start with we're just offering a basic hosted subscription plan. Going forward we're going to open up the software with web services and source-included plans. This is where the OSS model really works, we charge for the hosting, and then have the opportunity to make consulting revenue by customizing the product per customer request. Hopefully it works!
END SHAMELESS PLUG
For some reason, this sounds familiar.
What happens if you have to begin charging for the product itself because it is no longer feasible to offer it for free. I know I am instantly turned off by a product that was once free and has grown so large or its market share increased that they turn to charging a price, even if it is essentially the same price.
This should become interesting as Free software matures and becomes viable products for the common man (please dont flame on "there already viable")
"So, instead of charging for the software, charge for the hosting. Develop and open source the product, then charge people to use the service in your hosted environment."
Or keep the software closed and charge for usage.
Open sourcing it simply means that someone else can host the same thing, and undercut you. Remember nowere is it written that you have to help your competition. Nor are you even obligated in creating one.
So Linux companies need to put their prices up, don't sell Redhat to compete with Windows Server, make it 4 times more expensive and advertise as much as Microsoft do, then the PHBs will take notice. The SCO license fee could help here to - include that in the cost?
This comment does not represent the views or opinions of the user.
One of the problems with this pricing model is that it doesn't take reputation into account. People know that MS Access will work with Windows XP. There might be a few bugs, and there might be a few issues, but for the most part it is stable and people know how to use it. Now imagine that a new software comes out. It's producers try to show that it's better than MS Access by pricing it $100 above Access per license. What they haven't taken into account is that people KNOW Access. They know how to make it work. Will people pay $100 more (per license) for something that is unsure? Additionally, the $100 per license isn't the only cost associated with the software's implementation. What about training? All the people using access before will now have to learn to use the new software. That can be $very$ $expensive$.
Try eMusic. DRM free, legal, MP3 downloads.
If all software was free, why would anyone bother developing it?
Forget the free part for a moment.
I develop my own software because I can't get what I need either for free *or* for money.
The commercial stuff is often close to useless,
as it's always designed for flash and flare, not
usability or utility. Thank 'Marketing' for that.
I suppose I could get custom work if I offered *enough* money, but why pay out a year's income for something which might take me a day or two, or
a week, to do myself?
If you want to sell your product to consumers, you can't really charge an arm and a leg (unless your MS ofcourse). Generally I don't buy any software that runs over $60, OSes excluded ofcourse. Now if you're selling to a business, it varies greatly. For a business, a $600 license for Photoshop is practically a bargain.
Just like the article said (see the bit about college student vs. small company vs. fortune 500 company).
For a business, a $600 license for Photoshop is practically a bargain.
Bullshit. It's a major issue here for us to buy one additional Mac, considering that the hardware costs about 50% more, and the software pretty much doubles the cost of the system.
A new G5 costs us about $4000 once all the software licenses are aquired.
A new Windows PC we could throw together in a day or two, for about $700 including Win2k OEM licensing, Office, etc.
A new Linux server we can put in for $400-500.
Software licensing is a major issue for businesses, it's a huge cost.
I've had enough abrasive sigs. Kittens are cute and fuzzy.
>What happens if you have to begin charging for the product itself because it is no longer feasible to offer it for free.
Then you should open source the product so that additional help can be gathered. If the product is so very popular, plenty of people will be more than willing to work on it for free, even if it means your company benefits, so long as features and fixes they want end up in the software.
If you could be told what you can see or read, then it follows that you could be told what to say or think - BoC
I'm not a money grubbing capitalist- I have to say that to make software that I create free you have to somehow magically provide me with food, clothing, shelter, medical care, water, my MSDN subscription and a net connection.
SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
This is the fantasy Open Source business model and it doesn't work. Except when the software is hard to use. But then the business model is "give away crappy software and charge people to actually get it working."
If you want to make money on GOOD software... software that actually empowers people to be self-sufficient, you need to charge for the software.
One other note. It takes vastly different mind sets to develop in a product environment than in a consulting environment. Your best product developers are going to be people you would never throw in front of a client.
Software pricing = (DC + RC + P)/EUS ...where DC = Development Costs, RC = Residual Costs (support, maintenance, etc), P = Profit, and EUS = Expected Unit Sales.
Obviously, if you are selling to a wider audience, the software can be cheaper. This is why niche software like AutoCAD is so expensive.
Life is the leading cause of death in America.
More and more software seems to be written solely for large companies. You hear about TCO, support services, customizations, and thousand dollar prices. Even all the open source money-making strategies focus solely on support and customization, something only big business wants. Whatever happened to making software for normal, individual users? The kind that don't need much support (I sure have never called any of those, even when the software broke down), can't afford custom software and don't need any (me? hire a programmer to customize stuff for me? Please!), and will never ever pay more than $49.95 for ANY single package? Am I the only one feeling a little left out? Will future programming be exclusively for big business, with no use for us little people at all? What will happen to all those revenue models if we have a recession and big businesses go out of business?
"Another flaw in your question is that costs are easy to quantify. In fact, in software development, they are hard to quantify. How much, exactly, does a download of Photoshop from the Adobe web site cost Adobe?"
That's not "software development". That's distribution costs. Now if you had asked "How much does Photoshop cost Adobe to develop?" that would have been more accurate. I see the same mistake being made when it comes to movies, music, and books. You can't ignore either costs, if you plan on running a successful business.
Could you explain your beer-renting metaphor? All the beer I've had in my life has either been free, or bought out-right.
The only thing I can think of is perhaps some crazy conspiracy where beer drinker's urine is captured, bottled, and re-sold (rented). This is certainly not the case in Canada, where all my beer comes from.
Gee, I can't think of anyone who would develop software without getting paid for it...
But seriously, there are several reasons people would write software whose price is 0:
There are lots of motivations for people's actions besides money.
All's true that is mistrusted
>If all software was free, why would anyone bother developing it?
Here's a list of things I can get for free, from the top of my head:
- Electricity
- Clean Water
- Heating
- Cooling
- Paper
- Pens
- Food
- Shelter
- Needles
- Condoms
Sure, I can't get my entire supply of all of those items free, but I definately can get those items in smaller amounts for free. And all of those items cost money, and generally aren't directly paid for through your taxes. Yet there's lots of incentive to open power plants or water facilities, food-share programs, etc, etc.
>Let me put it another way...you're a software developer making a product - the final piece of software represents the work you've put in to devloping something unique and useful....how much is this effort worth? Nothing?
Well, let's ask someone who owns a power plant the same thing first and see what they have to say.
It's all about setting up the business properly, and basing income on things that are saleable. I own a satellite business, I've spent a lot of time developing lists like this. Guess what? I don't charge for that. It's free. I'm still in business because I charge for things people feel happy to pay for, like satellite receivers.
That being said, if I were to compare the time I spent making that chart with the time someone spends coding software, and compare "sales", I *should* be charging about $0.10 a copy for that satellite list.
If you could be told what you can see or read, then it follows that you could be told what to say or think - BoC
I think the article misses an important use of pricing. If you are in the software industry long enough, you will come to know that there are customers out there that you flat out don't want. They will give you money, but the money to pain in the butt ratio will never be in your favor. A lousy customer is like being tied up naked in a very small room, sprayed with sugar water, with 100s of starving flies. How this person would dream to go postal on these flies, but can't because they are tied up. Same with customers, don't tie yourself up by accepting crappy customers. How this relates to pricing is simple, price your software serices to at least twice as much as you think they will ever pay. That way they won't even dream of hiring you. A potential customer that never became an actual one is better than one that has a bad split with your company.
Nuttles
Saved by Grace
"It's hard to really draw a line in the sand about pricing, though. I think that's the greater point to be made."
There's that, and what some of your customers do as individuals when they feel that "if I think it's valuable to what I do and it has a distinct advantage over competing solutions. ", but don't like your particular "line in the sand".
" enter it quickly, search it powerfully and associate it meaningfully"
Nice elevator pitch, and I'm not being saracstic. It's rare to find such a good and brief expression of what a product does and why it's the one you should use.
development.lombardi.com
I used to work on a server data replication product.
There are many tales to tell about this debacle (I think the vendor has long since cancelled or put it on maintenance mode) - but there was a point where we raised our price from $250/server to $5000/server, and the ONLY change in the product was a name change. No new features were added. Hell, we didn't even update the GUI. Saled jumped 20% that quarter. (unfortunately it was not to be sustained).
The reasoning was, the Market didn't take us seriously at $250/server because all of our competitors were priced in the $5000/server range.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.
You misunderstand the software industry.
I'm a programmer. I work for a company. They own the code. They use it themselves; they do not sell it to anyone.
I don't get royalties for any of the software I develop. I don't get paid licensing fees. I am paid wages for my time, and that is how I am paid to develop software.
That is how my working time is valued.
I don't have to subsidize my time after-the-fact with uncertain licensing fees, and if I stop working I do not continue to be paid. I am directly paid for the work I put in each day.
I think this is fair.
I represent 90% of the software industry. If all royalties and licensing fees for software were magically abolished, my job would not change at all.
Except perhaps I could be more productive.
And less likely to get my job "offshored".
DNA just wants to be free...
Hate to be the part of the money-grubbing capitalist here, but money makes the world go 'round. If all software was free, why would anyone bother developing it?
:)
They just feel like it? We are talking about humans here, not drones, right?
Writing software is part of their job? Lots of scientific software gets written like this. So do new research projects funded by big computer companies (e.g. Sun's Looking Glass).
Perhaps they expect to get their money from contract jobs (to customize said software) or support/installation money, or subscriptions (hey, it works for AV vendors...)
Or maybe they're writing the software to advertise themselves. Or as part of a college class.
The moral of this story is that people who say things like "money makes the world go 'round" have had their imaginations crippled by some simplified version of economic theory that they picked up somewhere.
If you did read the article, though, you'll see that later on he does mention that there is an effect of price on demand (sometimes lowering price can actually lower demand - go figure) but he correctly points out that this is complicated and basically impossible to predict. Also, there is a difference between things like commodities (such as a bolt, or even a song to follow your answer) where there are so many alternatives that a slight change in price will have a big effect on demand.
For the type of product described here, demand is more or less independent of price up until a very high price, at which point demand goes from some number rapidly to zero. It's not unlike gasoline, which people will pay for - even high prices - because they need it and would rather pay higher prices than figure out an alternative.
I don't even want to go into the "funny money" aspects of things like "cost of piracy" or "cost of a virus". In my book, unrealized revenue is not a "cost" or a "loss" but just people complaining about what-if scenarios.
"There are a dozen opinions on a matter until you know the truth. Then there is only one." - CS Lewis (paraprhase)
"If all software was free, why would anyone bother developing it?"
for the imbetterment of mankind? to prove your usefullness to society? in order to solve a problem that will make your life better as well as others?
money is a broken way of trying to insure that everyone can trade with eachother. IE if i have beans and need silk but the silk people need widgets, i dont need to go out and trade my beans for widgets before i get the silk.
problems with money are inflation and an infinte supply on the federal reserve level... need to finance a war? just print more money to pay the troops! since the US is not endorsing a gold standard, it pretty much makes it very easy to just print off money when you aheva problem. i think this has been done since lincoln and the war of 1812 or whatever (not american). I seem to remmeber reading that the US Govt abandons the gold standard every time they had a war up untill vietnam, when they totally scrapped it. this also increases the gap between the rich and poor.
cheers.
I'll just use my special getting high powers one more time...
While charging for the product has made some people rich, I think some people have proved by now that you can get by without charging. If all software was free, IMHO the technology would still bounce along just fine, and probably in a more rational, beneficial, decentralized direction.
An oldie but a goodie (and humorous too) from Chuck McManis on software pricing for the little guy.
In that case, you can't always make a living off of service and support.
You must be coding in the wrong language.....
Use VisualBasic.... trust me... your customres will need a lot of service and support.
Moneyed corporations, non-working 'poor' and criminal prisoners are turning productive citizens into tax-slaves.
Just out of curiousity, is anybody going take this advice without a big grain of salt? It's a Micrsosoft Developer Network article that suggest you charge more than what Microsoft does. The first four points are good advice (and I also thought common. I haven't studied business and I knew those), but that was a strange example to use to suggest that you should price higher than the competition. "Yes! Price your product higher than ours! We promise you'll do better."
(Also, would Firebird really be competition for Access, or is it closer to MS SQL?)
I believe you've missed his point. He's not saying there are never reasons for free software to be made at all. He's saying he doesn't think all software can be free, and that's a big difference.
For example: People want to get a job as a programmer so they write a software package to prove they aren't total code monkeys doesn't apply any longer if there is no such thing as a software job.
Probably, the truth is that both free and unfree software both have their reasons to be, and neither will (or should) entirely replace the other.
and in a possible future when nanoforges exsist and you can have cloating shelter fodd and medical care (*note* most countries eg canada, already provide free healthcare) for free, then maybe people will think differently.
then we can base everything on people doing things they want instead of thigns to make money. end result; better quality products made with love. of course since you mentioned MSDN, i would assume that you are pretty much making money of societies general ignorance and thus your job would be eliminated when everyone gets really comfortable handling windows problems.
Billibus Maximus. You may remember me from several Dilbert strips.
This is aggravated by the number of applications your need to run.
If I can make 60k a year, and I throw away half on G&A and overhead, I've got $30k left. Sure, $600 for PS looks like a bargain, but it's probably not the only package you use.
As an engineer, here's a "complete" suite of programs I'm likely to use: AutoCAD ($4000), AutoCAD extensions ($1000 total), a FEM program ($8000), a wood design program ($1200), a steel design program ($5000), a foundations/general design program ($1000), and a general purpose math solver ($1200). That's $21,400, before I've purchased an OS, productivity software, image manipulation, accounting, email, web browsing, computer management, anti-virus, backup, etc.
With bargains like $600 for every little side application (like photoshop), I'll be eating fried ALPO sandwiches for dinner, just to keep the lights on.
(Yes, some of those programs are available for "free", but not all are, and if I'm going to bill a full $60k this year, I can't spend much time doing much online research to save $50 on an application.)
Is it just my observation, or are there way too many stupid people in the world?
Simply follow Microsoft's approach.
Get a monopoly in two important products, e.g., Office and Windows. Charge 80% margins on those products.
Use those huge profits to give away or nearly give away everything else.
If someone says he and his monkey have nothing to hide, they almost certainly do.
I know it's a bit of an anti-establishment thought, but I'm not sure demand-side pricing is ethical. The whole idea of trying to take your customers for everything you can sounds so much colder when you look at it from their side.
And the whole idea of trying to take your suppliers for everything by demanding the lowest possible price is pretty cold (just ask the suppliers to Wal-Mart or Dell).
Neither supply-side nor demand-side pricing is wholly ethical - it depends on your perspective. If I find someone selling something for $1 and I know I can do something with that item that brings me $100 (or saves a $100 in costs), shouldn't I share the wealth with my supplier. In that scenario the customer is unethical in trying to get the lowest cost possible (taking the supplier for all they can). Just because it cost someone $1 (supply-side price) does not mean its worth $1 of the fair share of the value it creates.
You mention the notion of a fair markup - it would seem that both the supplier and the customer should agree on a mutual mark-up so that the profit to the supplier and the profit that the supplier's product brings to the customer are "fair." That would be the ethical thing to do.
Two wrongs don't make a right, but three lefts do.
" ... is to be a business that sells hardware and then provides software as a service to its customers. "
Cisco and Nvidia do this. But note that their items are differentiated enough to command bigger margins, than more commodity items.
"Especially in this position it is easy to open source things since you don't really make your income from the software but the hardware that you use it with."
So when's Nvidia or ATI open sourcing their drivers?
Thanks. I just completed a three month project to enhance our project in a very subtle way. With the competitor's product, every time you enter a client's name and address, it goes in a different field. To associate the data, they do an on-the-fly lookup at report time comparing names and addresses. The end result is that lazy bookkeeping quickly destroys the value of keeping the records in the first place -- Herbert Walker gets three copies of the catalog because some lazy clerk entered his name as Herb and a dyslexic one as Herbret.
But lazy bookkeeping isn't something that can be changed -- the data entry is necessarily fast and off the cuff and probably wrong. So I rewrote our data entry system with this in mind. It uses a bunch of clues (soundex, common misspellings table, additional addresses, names on credit/debit cards and so forth) to compare a set of new data with the set of existing data. If there's no match that's correct enough (according to a user set percentage), the user is asked which of the most possible entries is correct.
The offshoot of this is that our system permits them to be more lazy -- enter just a little bit of data then hit the "guess" button -- while maintaining a more useful tracking system.
I told the sales team they should use that as the slogan..."Our software lets you be lazy"...but it didn't fly. The "enter quickly, search powerfully, associate meaningfully" line had more zing I guess.
Hey freaks: now you're ju
The whole scheme is repeated while increasing the good text file quote by 100. When the donation link reaches $20, I hire some people from India, China, or Glxbltistan (via MSN messenger) to do some more serious marketing and probably maintain some parts of my product code or maybe add plugins for it which I can sell for $15.
Pricing depends on your goal.
If your goal is to maximize profit, that's one thing.
If your goal is to maximize distribution, that's another game altogether.
If your goal is to penetrate a particular niche market but you want the headaches of supporting customers outside that niche, that's another altogether.
If I want mass distribution and can afford to do so, I'll sell it for under $20 or give it away.
If I want niche distribution, I'll research my niche and price accordingly.
If I want to maximize profit, I'll look at the overall market and price where I think I can meet that goal.
There's more to sales than price though. There's your company's reputation, and of course marketing, marketing, and more marketing. But not the overly annoying kind, that typically backfires.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
At the risk of feeding a troll, the programming language doesn't matter. Bad coders will write bad code no matter what language they use.
SYS 49152
You can be guaranteed to find the latest big release on sale round the corner from me in Brazil for a buck fifty & sometimes before the actual launch. When the real thing costs 500 (or 6 minimum monthly wages) you can understand there is a tiny official market here. Windows is more or less freeware in the consumer sector - it is pirated. Anyone below the level of multinational will get an OSS or Shareware solution only if they have too and a pirate installation 1st. Officially priced ware is not on the radar.
So when it comes to international pricing there is no world market universal price that works - 500 dollars is expensive anywhere and unaffordable for the largest chunk of the world.
I think it would be interesting to look at the price
and sales of something like Eclipse vs. VisualStudio. Then if you throw MyEclipse into the mix and see how they do vs. Eclipse. MyEclipse costs about $30 and I have had no problems getting that approved from any company I've contracted for. They've even been so impressed they dropped their other IDEs and moved most of the developers over. Is $30 the right price for an IDE? Is free? Eclipse, as great as it is, can be a bit of a pain to integrate the various plugins you need to do real development. I have no problem paying $30 for that. I even bought my own copy to use at home because I like it so much.
On the flip side you have Visual Studio. That seems a bit much for an IDE. Luckily, the company I work for is also MSDN, so it isn't that much for me to get it. If I went into a company and told them I needed a copy of Visual Studio and it would cost them about $1500, I think some might not be too happy. Heck, I could probably get some places to drop MS for Java on server side development based on that cost differential alone.
It seems like the same thing is starting to happen on the Office front now--Star is cheap and Open is free and places are just starting to realize that maybe this is exactly how MS sets prices. It can't compete on cost so it ups the price to make people think it is better. Funny, but I think more and more CIO/CFOs are starting to see this.
I think you're misunderstanding what I meant - I'm not saying that NO software should be free - I'm saying that ALL software can't be free. Call it my crazy cripled imagination about economics, but somewhere along the line a company has to make money to survive. Sure they can do it through support and ads, but that's not going to support the whole industry. Some products lend themselves to these types of services, others not so much. Right now I'm working for a company that does medical software - they're not going to support themselves through service or through ads - they need people to pay to buy their software otherwise the company will go out of business. There are a lot of areas like that. Free software is just not going to work for them.
...no two people are not on fire.
N/T
disgusting animal
That is, of course, assuming that a new version comes out every year.
Lack of eloquence does not denote lack of intelligence, though they often coincide.
Joel Spolsky (of Joel On Software) published his views on software pricing a little while ago too. Worth a look to see how someone else thinks about the topic.
But that 21k you spend on software isn't an annual cost. Sure, the first year you only make 39k before taxes (about 12 bucks after, in my experience), but there's probably compelling reason to buy new versions of all those applications the very next year.
Hell, every business incurs costs. A good friend just started his own landscaping business, and dropped about $50,000 up front, on trucks and equipment. But those aren't annual costs, he should expect to only be paying a fraction of that per year in maintainance.
Even the MS upgrade mill only turns over every 5 years or so. So take your 20-30k figure, divide it by 5, and you look at $4,000 a year, which isn't so bad.
I don't need no instructions to know how to rock!!!!
I develop software that is used internally for the company I work for. I always got 'we need better documentation', even though I spent a lot of time writing up, putting nice screen shots, etc. When I got done, I thought I had a great manual.
Still got complaints that the manual was too confusing.
So, I got an idea. In the release of my next project, I included a sentence in the docs: "The first person to bring this sentenece to my attention will get a $1 reward." I put a dollar in my desk drawer and circulated the doc. That was two years ago. The dollar is still in the drawer.
You must not drink http://sify.com/news/offbeat/fullstory.php?id=1354 833 Busch beer.
If you get $100 of use out of an IM client, I'm going to have to introduce you to this concept I like to call "outside."
-Looking for a job as a materials chemist or multivariat
I think you're misunderstanding what I meant - I'm not saying that NO software should be free - I'm saying that ALL software can't be free.
The post which started this thread said that the correct price for _most_ software is free. Note the word "most".
The problem here is that everyone keeps changing the subject. You did it, and I did too (sorry about that).
So okay, the entire software industry as it currently exists, which is what you're talking about, wouldn't exist if all software were free. But there could still be software, and even a software industry, if _most_ software were free. Aside from the reasons I mentioned, there's the fact that some companies are hardware companies (IBM and Apple, for example) and would do just fine giving away their software "for free". I don't know how much we paid for the software on the control systems for our Seimens MRI at work, but considering the high cost of the thing and the constant need for maintainence, I bet that Seimens could still make a profit without specifically charging for software.
As per my Canadian-beer-only statement.
Interesting example. Right now there are thousands of diseases for which no effective treatment is known, and no one is trying to develop one. They are "orphan diseases", because there aren't enough people suffering from them to make such research profitable. This doesn't mean there aren't many people suffering from them, some, like malaria, affect millions of people worldwide, but they are too poor to make a treatment profitable for the pharmaceutical corporations.
There are national governments, such as India and Brazil, which are seeking for exemptions from pharmaceutical patents in order to produce and make available treatment for the poorest people suffering from diseases like AIDS. The conclusion is that only the richest can profit from "intellectual property" motivated research, be it in medicine or software. We need to find an alternative to IP, if only for humanitarian reasons. What was good for the 19th and early 20th centuries isn't working so well in the 21st, and the free software movement is starting to show there is an alternative.
See, now I've gone and misread and stuck my foot squarely in my mouth. You're right - the original post did say that. Sorry.
...no two people are not on fire.
You know, we need to get out of this 499 price range you see everywhere.
it's software. it's not a hospital visit, or life saving, or hunger feeding, or shelter giving.
$7 a pop. that is the new standard. who's with me???!!!
...::----::...
I am in no way affiliated with this sig.
Some one really ought to tell Microsoft that they can't complete with similar products by charging money. Last I checked, MS Office has probably 2 or 3 legitimate competitors that are completely free. MS Office rakes in cash like very few other products.
While there are plenty of other ways to make money, generally for niche products, charging directly for the software is a good idea.
Kirby
You put the decimal point in the wrong place. $6.99 is about right for me.
120,000 men all together in the desert all hot and sweaty with no women
sounds exactly like USA troops to me
How do you price software? The same way you price any other product. Duh!
This isn't rocket science, people. If your total revenue drops when you raise/lower your price, then lower/raise your price. Do a bit of market research to narrow in on the correct price. If sales don't work, don't have sales.
Software is a product just like any other, so don't go throwing our all of your sales and marketing knowledge because your not selling forks and spoons. Some of the details will be different, but most of it will be the same. If your product is Open Source, you're probably going to have to sell it at a low price. If it's proprietary software for a niche market with no competition then you can charge a lot more.
Don't blame me, I didn't vote for either of them!
The healthcare in Canada and other socialist countries isn't really free, it's paid for by taxes. Why people insist on forgetting that, I don't know.
As to your comment about MSDN, perhaps you have forgotten that some of the higher priced versions come with a full suite of developer tools, that's the reason I subscribe and that's how I get the tools I use to create software for Windows. (Why anybody would do it the other way is beyond me; Visual Studio Archetect costs $1700 anyway, so you might as well get all the extra stuff with it on the 50 or so DVDs it takes to hold it).
SJW: a person who perceives an injustice, and while correcting it, commits a greater injustice.
It's vastly over-rated. *grins and turns off the Sarcasm Ray*
There is a difference between "insightful" and "inciteful" other than spelling.
When I was at Fine Point Technology developing the Total Internet 3.0 product we focused on the small ISP segment and our product (a sign up disc for the ISP) had real productivity gains (less time on the phone) and better customer service (most clients could "self provision"; most as in your mom or dad, etc.).
Thus we were able to price the software based on savings and actual value and we offered promotions but never altered the price.
This seemed to work well.
http://www.hawknest.com/
Good software is not about empowering people to be self-sufficient.
Tech courses are.
If your software is for servers, you can sell pre-installed servers, and skip the cost of making an installer-for-dummies, that you will need to support, and might have its own compatibility requirements. That money can be spent on making better software, or better manager apps, if it's intended for the server market.
Small apps can be supported by selling CDs, T-Shirts, like the Mozilla Foundation, web adds, phone support.
If your software is useful enough, your community can help you with the next steps to take.
Yes and no. It depends on the size of the market for all those add-ons. If my product is, say, targeted at businesses with IT departments, and is easy to set up and support, than they will not likely purchase support from me. Likewise, if my product is a huge pain in the ass to use without the pay-for manual, I'm not likely to accrue customers. Only a product which demands expert support is going to work with your suggested business model, and this is a very limited niche.
Personally, I'm going to have a go at starting a company that produces useful applications which are small, lightweight, platform-agnostic, and easy to use and administrate. With these applications, I plan on supplying not only source code (non-GPL, but close), but a comprehensive manual as well. Support will also be available for those customers that want it.
What will I charge? Depends on the size of the business -- I plan on doing a tiered model, with the oddball bit that the first tier is completely free to individuals, nonprofits, educational institutions, and small businesses which make less than $100K a year, because I don't view these as my core market -- they wouldn't pay for the applications I plan on providing anyway, so giving it to them for free makes no difference to my bottom line.
--
I Hit the Karma Cap, and All I Got Was This Lousy
If all software was free, why would anyone bother developing it?
Because we want to? What is with people who don't understand that? I think it reflects on them - they are incapable of understanding that we do stuff because we just want to, and they think money is everything, so assume we do too?
Most of the time with software, the price never drops significantly. When it does, there's usually a new version that obsoletes the old one, and it's either more expensive, or the same top retail price. There isn't the same kind of drop over time that we have with hardware, or consumer electronics, vehicles, etc... so software is considered overpriced. Often old software doesn't have any updates, (I.e. softIce) but the maker doesn't offer the old version at a low cost, if at all. I'd say generally the software industry has decided to charge high prices, but can loose sales because people just don't buy when they think they're getting screwed.
"And we have seen and do testify that the Father sent the Son to be the Savior of the World"
1 John 4:14
When the USA was a wee upstart of a country, it simply refused to recognize foreign patents and copyrights. Foreign inventions could be used here for free... unless someone here patented them as well. Foreign works could simply be printed; no need to compensate the foreign authors. Nothing they could do about it.
I expect that India, China, and Brazil are carefully weighing the pros and cons of doing the same. Remember that "intellectual property" is a fiction created ostensibly for the purpose of making society better off, but it has morphed into a tool to enrich certain corporate interests.
Were I a Justice of the Supreme Court of the United States, I would hold the view that legislation cannot change the duration of copyrights ex post fact. If Mickey was drawn when corporate copyrights were 30 years, then after that there are no restrictions on anyone else drawing pictures of Mickey. The Sonny Bono Copyright Extension Act is just plain wrong, because it takes away rights that the public had to use works after copyrights expired, and gives the public nothing in return. Mickey is already drawn, and when he was drawn the deal was for howmanyever years. Extending the terms for the Disney Corp. gives the public nothing, and takes away quite a bit from the cultural commons.
End rant....
Um, no. The graph does not assume "a constant number of units sold." It's a parabola. He describes the graph in terms of Revenue = Units Sold * Price. If you keep units sold a constant, it is quite clear that the graph would then be a line. Linear. Not a parabola. His graph takes into account the fact that the higher the price is, the fewer units will be sold. Which of course is what you go on to "clarify." Bear in mind, of course, that the author did say it's a ridiculously simplified model.
Lack of eloquence does not denote lack of intelligence, though they often coincide.
Then at least keep the older, less-endowed, free version(s) available. If you want the newest/most capabilities, ya gotta pony up. But I hate it when older/cheaper/less feature-rich but still adequate for my needs software is withdrawn.
Attention zealots and haters: 00100 00100
Sounds like your audience is already jaded. We had a Q/A department where I once worked and it was the best thing ever for producing user documents. Programmers seldom think like users do, which is why it's good to have an person with that approach review and add to your documentation. Sadly when budgets start being cut Q/A is the first to go, which is utterly stupid.
A feeling of having made the same mistake before: Deja Foobar
We have these marvelous things in the USA for removing pollution from the air -- lungs.
Beer is rented as it's mostly water, you don't keep it, you only get use from it.
A feeling of having made the same mistake before: Deja Foobar
What is my time worth? Maybe... the existence of the software I produce! That is, I'm paid back for the time I spent writing the software by the fact that such software now exists. And if I couldn't develop and maintain it all by myself, then I need some kind of collaboration agreement with other programmers, like, say, the GPL. To put it another way: I can pay for the software I need/want with money, or I can pay for it with time spent programming.
I might also mention that it is possible (and potentially profitable) to hire programmers (and pay them) to produce free (as in gratis) software.
You're mostly correct, and I understand what you're trying to say, but I don't buy it... Think about it, maybe you'll re-think why people or corporations (IBM and Novell today, SCO yesterday, who tomorrow?) are doing it.
Only 2 of your points don't involve money:
- "Some people have a political motivation to undermine proprietary software"
and
- "Some people like to help others".
The driving force behing the first is usually hatred or envy. The second is of course a noble point and I like it.
Everything other is just a quest for money and power.
- "People want better software to do $WHATEVER": money here.
- "People want to get a job as a programmer": money here.
- "People like fame; they like being admired and appreciated": of course.. and then follow the money.
- "An industry consortium decides they need an open, standard, free way to do $WHATEVER": and more importantly to undermine its competitiors.
- "Your company might want to make your product universally (or nearly so) used in order to be able to charge money for training, certification, etc": money again.
So what are motivations besides money, huh?
- Arwen, I'm your father, Agent Smith.
- Well, you're just Smith, but my father is Aerosmith!
Think of money in the economic sense, not the social one.
Money is a store of value.
Thus, these people do such things because they believe there will be some value returned to them (money) by doing so.
Just because it costs $0 doesn't mean it's not valuable, and just because it costs $0 doesn't mean you can't use it to make money (service contracts, consulting, hiring, etc)
Um, excuse me. AC here. For those who have the "web developer" Firefox plugin. Choose "disable page colors".
"There are lots of motivations for people's actions besides money."
I don't see sex. That'll generate some impressive software right there.
Nah... his assumption is that Quantity = 1000 - Price, a decreasing linear function. That's what gets you from his assumption
to his parabola with (obvious) equationThis is...
O
U
T
R
A
G
E
O
U
S
!
What exactly do you think the point of software is? You think people buy Microsoft Word to learn how to use a word processor? You think they buy Unix systems so they can recompile the kernel?
No. The point of software is to enable people to do tasks more efficiently. Good software requires no training, no manuals, and no tech support.
If your software is for servers, you can sell pre-installed servers, and skip the cost of making an installer-for-dummies, that you will need to support, and might have its own compatibility requirements. That money can be spent on making better software, or better manager apps, if it's intended for the server market.
In other words, place the burden on the end user. That's absurd.
Small apps can be supported by selling CDs, T-Shirts, like the Mozilla Foundation, web adds, phone support.
Only hard core geeks want software t-shirts. The rest of the world wants software that works without them having to think about it.
If your software is useful enough, your community can help you with the next steps to take.
Only for software aimed at developers. Most software is not, in fact, aimed at developers.
No such thing as a free lunch, baby.
If you want to make a ton of money selling software, you should try to write a web log analyzer that really understands business needs. Right now there ZIP, ZERO, capable free software that works well for marketing. Don't point out webalizer or analog because both are equally useless to do any real business intelligence (pardon the overused stupid term) You can look at nettracker, webtrends, hitbox, and urchin. There is NOTHING right now available to users that compares and is actually useful. If there is a genius coder here (I'm sure there are tons) run with it. Send me a copy when you make it rich. I can provide the marketing needs if someone serious is going to take up the programming. HINT PLAN FOR SCALE - GIGABYTES per LOG per day in size.
At work, while others pass around movies I just can hope that I get ahold of a Windows box to view them in or ultimately go to another's box and take part in the fun.
Windows... it just works. What's the price on sanity? Time? Productivity? Feeling you accomplished what you set out to do instead of repeating the same steps that hundreds of others do all the time merely to get a small part of a piece of a component of your entire system running correctly for 25% of common uses? This is obviously a troll, but truth hurts worse than any natalie portman hot grits down my beowulf clustered pants.
Again, no dis on them Gentoo folk at all. Like any hobby project you have good, bad and great. Gentoo is at the top of the list of hobbies. Meanwhile professionals will continue to track issues using more than forums, emails, and IRC. Hard to be anything but a niche hobby currently.
So how's that 2004 series of LiveCD's working? Want sound? Want 3D graphics? Perhaps playing a movie is what you want?
like software, sex can be given away for free, or its providers can charge mid to large sums of money for it...
the people who do it because they love it, are less likely to charge people they like...
while those at the high-end of the market demand large sums of money, often because of the unattractive nature of the buyer...
a street-level bargain can often be had, if you're willing to give up some features...
catching a virus can be a problem, especially from a vendor who is servicing multiple customers...
if you do it wrong, you'll get in trouble with the law!
so, as with many things, the question boils down to who you are, and how much it's worth to you...
so, in conclusion, i expect to see the emergence of the Next Big Slashdot argument:
"Sex should always be Free" vs. "Don't trust Free Sex!" ;>
I chose VB(6) for a project that I started as my partners where not offey with other languages.
Now 18 months into the Project VB crashes several times per day. I often have to hand code the project files to fix stray changes that VB puts in that render the program uncompileable.
Now I have to release the software and I'm thinking - will this program be as unstable as VB?
I also do some work in Delphi(7) and yet to actually crash the IDE (been doing Delphi since version 1).
PS part of our Project uses PHP and mySQL.
And here inlies the problem.
Most people read about FREE Software, Open Source etc... and have the impression that all their software solutions should be free.
That is why Government's such as Munich and Mexico are championing Open Source.
They see it as a way to cut costs.
Now if this trend where allowed to continue, as everyone wants to cut costs, then eventually there would be an expectation that all software should be able to be productd for free.
Interestingly when a builder cuts cost - safety and quality are usually the first to go. (think Towering Inferno (70's Charlton Heston))
Yet we are saying by giving away our efforts, quality can only improve - are software developers really that different from the rest of society.
That is the coolest promotion I have ever heard of.
Don't point out webalizer or analog because both are equally useless to do any real business intelligence (pardon the overused stupid term)
Injecting intelligence in business should not be done through software. Anyone stupid enough to think that blatant, annoying advertising is the proper way to attract customers does not deserve to make money. Any business that thinks it can analyze web traffic to improve its service doesn't deserve to make money. There are three simple things a company needs to do: Make a useful product. Advertise it (nicely, which makes it effective) to the proper audience. Provide good customer service. Analyzing web traffic at most tells you what people are looking at. It doesn't tell you why, or whether they are prospective customers. If you're trying to guarantee a certain hit percentage to sales pages or other "marketing" pages, don't bother. If people really need your product they will search it out. Don't suck the rest of the unsuspecting public into a worthless time waster. It wastes their time and your bandwidth.
Whoops, long day at work... problems with simple math again. Thanks for the astute - and correct - observations by these other folks!
</embarassed>
"There are a dozen opinions on a matter until you know the truth. Then there is only one." - CS Lewis (paraprhase)
Sure, you might initially make more money selling few copies at high price, but the first competitor will wipe you out clean, because you don't have any mindshare. On the other hand, if you initially sell many copies at cost, people will write books about your product, send out documents in your proprietory format, learn about in school and tend to use it at work later and so on. Even if you gave your stuff away from free, now you can make a killing selling enterprise versions, plugins and other products that will benefit from your popularity and reputation.
I suspect most companies will benefit the most in long term by selling the basic version of their product well below the top of bell curve to still make some profit while protecting their market share. And it's normal for previously unknown companies to lose money by giving away stuff for a couple of years to establish their reputation.
I think your story encapsulates my own major complaint about most documentation, certainly most man pages: it is necessary to read through the whole damn thing to figure out anything useful.
Read the whole damn thing? Yes No Cancel
No offense but you really don't know what you are talking about. Read what I wrote.
I strongly advise companies who are building software (or anything else for that matter) to think about the price as part of the design process. A lot of companies have failed because they had a great product idea, but no idea what it was worth to different segments of the market or how to charge for it. Software is particularly vulnerable to this type of thinking, because people sometimes belive that it has no variable cost. While the incremental bits may be free, selling them usually isn't. Consider sales costs along with dev costs when doing break-even analysis.
Think about what your product can do that others can't. Not in terms of functionality, but in terms of what it lets users do. Software companies often get caught up in the technical wizardry and overestimate the value of technically hard features, while underestimated the value of simpler ones.
Software is amenable to tiering (like MSFT with Office Standard and Professional).
Small price differences are unlikely to create significant competitive advantage. They're more likely to erode your margin and the customer's perception of your value.
Also, think about what other pricing levers you can use to drive customer behavior. Volume licensing, free trial periods, upgrade coupons, and rebates are examples. A product priced at $69 with a well-targeted $30 rebate is likely to look more valuable than the same product priced at $39. Like tiering, these incentives can be targeted at specific market segments, increasing their effectivness while limiting your margin erosion.