I purchased the Windows 7 upgrade during the pre-order sale timeframe, don’t even remember the price (it was that “why not?” pricepoint) - think it was $49.99 - 59.99.
Not only is Windows 7 a great OS based on my beta experience (it’s been my primary OS since Microsoft released the beta) but the price was so trivial. It’s not worth going through the hassle of finding a copy of questionable legality and worrying about patches, software that needs Windows verification.
“…the iPhone App Store has never made that easier”? Shouldn’t that be “has made that easier than ever”? I’m not a native speaker, so perhaps that’s an idiom I’m not aware of.
$120 for a Windows Home upgrade is simply thoughtless, especially considering that more and more people use multiple computers.
I still find it ironic that Gabe Newell tells everyone that lower prices mean higher profits, yet since the end of last year european customers got a 40%+ price increase when all dollar prices where converted 1:1 to euro prices. There are games that are almost 100% more expensive compared to the US!
Jeff, in theory you are totally right. The lower the price, the more people will buy and the more people will buy instead of making an illegal copy. The quantity will soon compensate for the lower price, so if you sum it all up, you are making more money even though the price is lower.
So far so well. In theory practice and theory are the same… but in practice they are not! And to quote one of your last sentences:
“But for software sold in high volumes to a large audience, I believe they might.”
High volumes and large audience are the keywords! What you use here as samples are product that a wide range of customers may need or just would like to have (if they really need it is another question). Of course the customer base for every product is somehow limited, however the gamer community is gigantic (that is like a 64 Bit Int is limited, but how often has anyone of us seen a 64 Bit overflowing?). So cheaper price leads to more sales and even cheaper price price leads to even more sales and so on.
What if the customer base is much more limited? What if you sell a product that only 10’000 people in the whole world will ever need or like to have? You sell your product for $35 and you sell 6’000 copies. Not bad. You could sell it for $30 and maybe sell 9’000 copies. And if you sell it for $25 you sell 10’000 copies and your customer base is satisfied. If you had sold it for $10, you also had just sold 10’000 copies, as the potential customer base won’t grow just because the price shrinks. See where I’m going?
The potential customer base is fixed before you start selling your first copy. The price only affects the real customer base, however it should be very obvious that the real customer base cannot grow beyond the potential customer base no matter how cheap you choose the price. And selling 10’000 copies for $10 or selling 10’000 copies for $25 makes a “tiny” difference (or maybe not so tiny, as a sales manager this difference will get you fired).
Sales/Marketing/Business theory tells us there is a peak. If you paint it as a graph, you have a price decreasing on the X-axis (you start at the highest price you can think of that is still realistic and decrease the price as the X-axis goes to the right). The Y-axis is the amount of $$$ you’ll earn (not the amount of copies you sell, as of course a product you sell for $0.01 may sell more copies than one you sell for $5, but will it really make more money just because of the higher quantity? I don’t think so).
I’m not sure how this graph will look like, but I just guess it will look similar to a bell-graph (as most real life graphs look like one). E.g.
http://www.ericsink.com/bell.gif
The further the price decrease, the more copies you sell and in the beginning the quantity compensates the lower price, so the overall incoming raises, first slowly, but increasingly fast as the price drops. This continues until we get close to the peak. Now all of a sudden the growth flattens and flattens and then we reach the peak. This is the optimal price for the product! All software should be sold at that price (which is different for every peak of software of course). If you go beyond the peak the incoming will drop. Why? The quantities still go up, but meanwhile the price is so low that even the slightly higher quantities cannot compensate it any longer.
Every sales guy knows this theory. Every sales guy is doing a better job the closer he can get to the peak without staying to far on the left or right side of it. Then why does it look like some products are so horribly far away of the peak? Windows upgrades e.g.? I don’t know. Maybe Microsoft should just fire their sales manager and hire someone who is not a moron. Lets face it, there are good programmers and there are horrible programmers - same applies to sales managers.
Definitely right on the MS pricing. I don’t ever upgrade my MS OS due to the pricing (even though my machines are capable). The only time I get a new version is when I’m forced to with a new machine. Drop that pricing down to around $50 and I would upgrade each time.
Not to mention that steam “sales” in Europe are still higher compared to retail in Europe.
"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."
In principle, I have to agree. But in practice, it couldn’t be further from the truth. For the sake of the argument, lets use “99c” and
See, if I know something is “99c”, I’ll take a look at it. If it’s “$9.99” and I have no interest I couldn’t be bothered. And that’s the underpinning problem of price. It’s not that an item WAS $40 and is now $10. It’s that I put the value of $10 in the category of “I don’t mind looking”; while $40 is “forget about it”.
Buying a $40 item just because it’s $10 is faulty economy at it’s best; and outside of women rabidly savaging the after-xmas sales shops, I can’t see someone buying something they don’t want regardless of price.
You have to wonder if the people are buying at the lower price from valve because they thought they were getting a bargin. The more the bargin the more sales.
I think the app store pricing is crap, spam applications are to blame, because these have bought the average price down.
I can’t believe no-one linked here: http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html
Off-topic: The captcha actually asks for the ½ character, how am I supposed to type it? Well obviously I managed, but still…
This has been coined as “peggling”. There’s a very interesting article on the topic here: http://www.tuaw.com/2009/07/30/updating-doesnt-help-your-iphone-app-but-price-drops-do/
Also of note is that Electronic Arts now has an entire department devoted to making 0.99 iPhone games
Wow … people buy more of something produced as a premium product (in the case of a AAA game - costing them many tens of millions to produce) when it’s offered later at a sale discount …
what an astonishing insight O_o
why has no one in sales ever considered this option before …
oh wait
Do you think that cheap software devalues the work of software developers?
Microsoft are at or even past their saturation point and need new growth opportunities. They have a huge untapped market of people running pirated copies of Windows. The are people familiar with the product and have stuck with it but don’t like the price. I’m sure that lowering their price is the best strategy for converting these holdouts.
They’ve already broken sales records with their presale numbers for Windows 7, helped largely by the half price offers. I’m sure they’d see even better numbers once the product is officially released.
I think increasing the profit by discount is valid only for software products which are usable for many people, such as operating systems, games, portable device software etc.
I am developing industrial automation software, they are tailor made applications and special for only my customers. I should bankrupt if I make discount.
Must be easy to install. No extra customers will be attracted by “why not” prices if the installation is “why bother” difficult.
What are we doing wrong? I’ve said this over and over - we are our own worst enemies. Its no wonder that corporate America treats programmers like second-rate citizens. They demand/expect that we work overtime nights and weekends without pay. They demand/expect that we produce work in their absurd time schedules. They demand/expect that the sort of work that we do MUST be produced in a cubicle between 9am and 5pm and boy oh boy, they’ll give you lunch time but make you pay for it if you actually take it. No, its not like that everywhere but its certainly bad like that to some degree or another.
Second, we allowed corporate America to outsource our work to other nations like they did the textile and other industries. We allowed ourselves to standby and watch it happen. Do you want to compete with a $12/hr programmer in India? No, neither will I. I’d sooner work at Borders and have 1/10th the level of stress for that pay.
We also allowed ourselves to give away our work. We did “projects” for friends and family for nothing. It has gotten to the point where people expect us to do this stuff for next to nothing. Can you imagine asking a plumber to come fix your burst pipe at 2am and then telling him you expected him to fix it for nothing because “thats your job”? What about electricians or lawyers, etc… Imagine assuming that they’ll just do their professional work for little to no pay. Yes - there are pro-bono attorneys out there but they also charge for 99% of their work too. They dont allow their industry to get outsourced to India and Estonia where the work comes back crappy for $12/hr just so some CEO can pocket more profit and not pay taxes on the workers here. And our individual states wonder why there is a revenue shortfall?
The problem is US. WE are the problem and until we stop giving away our work and our expertise for nothing, or next to nothing, we will never be taken seriously by anyone. Not the customers and not the executives in those skyscrapers.
As far as the App Store goes, when I develop my app it will sell for about $19.99 or maybe $24.99 - depending. Heck if I am going to give it away for free or less than $3 because “thats whats expected”, etc. My position is that if you can afford an iPhone AND its minimum $80+/mth service plan, then you can afford my $20 software. I worked hard to produce it and I am not giving in.
The killer thing here is that, at least in the case of software, the price eventually drops to “why not” levels. How much did Half-Life 2 cost when it came out? $59.99? How much can you buy it for now? $19.99. And that’s not any kind of sale, that’s the retail price. Gamers, it seems, are willing to pay more just to satisfy their instant gratification need. I wonder if this is brought on by playing the games themselves or if gamers were just indulged more as children and don’t have any patience?
[note: the bottom three rows (for 25%, 50% and 75% discount) do not show the total sales amounts as they do not include the original $4000 but only the increased sales]
I think that you are not considering the fact that some things must be supported after the sale. I bet that IPhone applications are largely unsopported. This is clearly unacceptable for an OS. And the cost for supporting something goes higher the more things you put in the package.
It is a hidden truth that you buy the software - and are at the same time financing a proportionate piece of the structure that made it. Very small structure for small “compact” applications. Extremely large structure for Windows.
And yes, in the Redmond case this means you are also giving money to lawyers 
