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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.
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.
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.
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?
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!