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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."
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...
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!
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
As is he competes with Source Safe, CVS, Subversion, PVCS, and lots of others.
Hard to call that a monopoly. Heck, Microsoft doesn't even have a monopoly in that space.
Bad User. No biscuit!
>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
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?
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.
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)
An oldie but a goodie (and humorous too) from Chuck McManis on software pricing for the little guy.
being a subscriber might give the complaint more weight, as well.
Well, my other account is a subscriber. But considering that when I posted a complaint about it both the IP's I post from (home and work) were banned from posting anything and my karma quickly going from the good/excellent threshold to terrible, I'd say that it doesn't carry any extra weight at all. I had been a constant subscriber since subscription had become available too.
Thank goodness for proxies, I guess.
I've just signed legislation that'll outlaw Russia forever. We'll begin bombing in five minutes.
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.
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.
Yes, but if you price your software at a low value then the cost to retrain everyone looks even worse. Which proposal will your PHB prefer to take to the CEO:
Scenerio One:
PHB "I'd like to buy a new database with five licenses for $699. It will help our productivity incrase and reduce crashes"
CEO "What about retraining?"
PHB "For all six users, $5,000, including downtime"
Scenereo Two:
PHB "I'd like to buy a new database with five lecenses for $18,500. It will help our productivity incrase and reduce crashes"
CEO "What about retraining?"
PHB "For all six users, $5,000, including downtime"
Given the two options, most CEOs (who know even less about IT than PHBs) will question the investment of $5,000 in training for a $700 product. For $700, how good can it be? But $18,500 for the licenses seems about in line with $5000 in training. Its all psychology.
Oddly enough, there's a program I want which has a pricing scheme that just doens't sit well with me. It's $1200 for the first license, and five licenses are $1995. As a small shop, I see that as an $800 "litte guy" surcharge, so I've not bought it. I have a (free) vendor sponsored copy that's old and I'd like to upgrade, but not for that kind of money. It's a nice program, but not that nice.
Is it just my observation, or are there way too many stupid people in the world?
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.
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
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!
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
The other problem is that this is practically the default color scheme now. *Most* /. stories fall under the IT umbrella, particularly of those I read. The games color scheme doesn't matter to me as much (and IMO isn't as bad as the IT scheme), since my main games are from www.popcap.com, www.idiotsdelight.net, and www.blizzard.com; none of whom is frequently discussed on /. Are there people who regularly read /. and skip the IT articles?
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.