One thing you need to take into account is user support. You cannot provide good support for users if you charge $1 for the software. Of course the software may not require support, but the more complex it gets, the more questions from the users will come. With iPhone one thing makes it easier – there is only one configuration, so most configuraiton-related problems can be eliminated, which sadly cannot be said of Windows.
To be fair, Windows 7 is a whole new version of Windows while Snow Leopard (10.6) has very few new features over the Original Leopard (10.5). And Apple knows it, since they don’t usually price their upgrades so cheap.
But i agree, Microsoft should lower his price, even more so considering the zillion options they always have for licenses.
Pricing is a funny thing. If you really want to experience pricing dynamics visit a live auction. Suppose cars. Say the market value for a car is actually $25,000. Auctioneer starts at $5000 approximately 30 hands up. At $7500 15 hands up at $10000 5 hands up at $20,000 only 2 hands at $20 500 the lot is knocked down! Why did the under bidder stopped there? That beats me!
I’ve spent more on iPhone software in one year than in the past 12 years of Mac usage total.
One thing that I have found with cheap software is that it means you don’t have to worry about the ridiculous “trial” period. I’ve bought software before at low prices without even trialing it because at the “what the heck” price point, if the trial doesn’t work out, it’s not a great loss in investment.
Not having to support trial versions of things would surely make for a decent saving.
How can someone define right or wrong here?
From my high school economics, the principle you are describing is elasticity (http://en.wikipedia.org/wiki/Price_elasticity_of_demand).
I admit I buy more software using the App Store then anywhere else. MS makes there money from the different licenses plans they offer, for example Action Pack Subscriptions. The interesting question for me would be how much of Microsoft’s upgrades happen via these programs rather then buying retail versions. Consider Apple doesn’t have a subscription solution, where is more ony being made? Food for thought.
Off topic: You know your addicted to StackOverflow when you want to upvote the comment’s on Jeff’s blog.
This seems to assume that a change of operating systems could fall into the category of “impulse purchase”. I’m not sure I buy that. (More at .)
I think this largely has to do with the fact that in both the case of the iPhone app store and Steam, you’ve already got your credit card attached to your account, so purchasing involves a couple of clicks.
For an independent site, you’d need an extremely high value-to-price ratio in order to get people to bother with typing in the credit card info.
There’s a post on Fred Wilson’s blog about iPhone app prices. Two interesting points:
“Competing with another application solely on price is a sure fire way to go out of business.”
“Getting someone to pay anything is hard. Once they’ve made the decision to pay, the difference between $0.99 and $9.99 isn’t as big as many think it is.”
An observation:
If Valve did it as a “sale” meaning they advertised it as a temporary discount from the original price, then it’s possible that the 50% and 75% percent quantities got a boost from the “what a great deal” factor which you wouldn’t get from a flat lower price.
Another issue, at least with games, is the time investment. No matter how cheap games are, there is a limited amount of time I have to actually play them. Though I have bought more games than I am able to play through Steam, there is a limit to how many unplayed games I want, even if they cost just $1.
Price differentiation maximises profits by providing the software to a person at the maximum price they are willing to pay. Companies do this by offerring a high starting price and then offerring a discounted price later in time.
I guess the point here is that the initial price is too high so the profit takes too much time to be realised.
@Gerald, @AT, @Thomas : at least in the case of video games, you have lots of specialized media which give advice on which game is good. They may or may not be dependent on advertisement revenue, so the opinion may be biased somehow. However, take a game like Cyanide’s Chaos League. It was sold around 30€ (~ 43$ now, but at the time I think it was also 30$). The game is of high quality, and all video games magazines and websites I know of agree with me. The fact that the price was “fair” (compared to the usual 60€ one has to pay for PC games nowadays) was also highlighted in many reviews. The same holds true for the new “Sam & Max” adventure games, where one could buy “per episode” at a reasonable price, or wait for the game to be “complete” (ie buy all the episodes when they are all out) for a “discount” price.
It is high time that software which has the potential to be truly distributed worldwide, with millions of copies becomes cheaper.
I also agree with Diago : the fact that you just have yo click to get apps on the iPhone clearly helps to buy new apps.
Similarly to what Thomas mentioned; setting the initial price too low will devalue the product - but a high start price and a quickfire limited-time sale will have people forking out in order to take advantage of a “good deal.”
Something that seems to be becoming more popular (although not so much here in the UK) are rebates. Using a rebate scheme, the retailer maintains the full price of the product (thereby maintaining a high perceived value) but at the same time offers the customer the perception of a good deal (and an incentive to buy).
I’m not sure how a rebate scheme could be applied to software (especially digital distribution) but it’s an interesting thought.
I’m with codeburns; I’d like to also hear about how their support costs changed too; increased user volume implies that you need to beef up your support infrastructure by an appropriately proportional level.
The lower price point may decrease the quality of incoming support requests too; you went down below the “why not” level on price, seems reasonable that the same might apply to “why not just ask support about this?”. This could affect the skill distribution required across your support team.
I’m just speculating; would be good if someone correlated those numbers with the sales figures.
The Mac OS X vs. Windows 7 argument is really an apples vs. oranges [no pun intended] comparison as “no name” points out. Also version of 10.5.4 (which I presume is a update from other versions) costs $129 which blows the argument out of the water. Mac OS X only runs on Apple hardware which has a high profit margin - wake me up when Apple offers it for PCs at that price.
Personally I get updates every 6 months to my Ubuntu and they are free, so both prices seem pretty high.
The real problem with the App store on the iPhone, is you have to decide to pay for something before know if it is any good (which is the same in general with software). Given how locked down the iPhone is, Apple could have a better model. Why not have trial period of a week? where I get prompted at the end if I want to pay or de-install, and your not allowed to re-trial (Apple would keep a record).
It’d be interesting to see the sales statistics from a couple of weeks after being on sale. Do the sales drop because those who wanted the game already bought it while it was on sale? Do they increase from getting more exposure?
I think the “heck - why not?” principle maybe applies mostly to fun software. As nobody really needs it of course there’s going to be a massive sales drop-off as the price goes up. But with important, practical, boring software there’s going to be a far higher percentage of buyers who would’ve bought it even at the higher price.