10 ms·

This is an example of how VCs distort the market for other businesses. I had a recent conversation with a prospect and they took issue with the price of our so

by josho 10y ago

This is an example of how VCs distort the market for other businesses. I had a recent conversation with a prospect and they took issue with the price of our software. Our app is in a specialized industry (ie. a smaller market). We charge a per use fee of $35. This fee enables our customer to immediately earn nearly $200 (a 5x return with no risk to them). Despite the significant benefit and profitability of using the app the prospect took issue with our price and referred to the cost of other apps. It was that conversation that made me realize how we've become accustomed to the quality and price of software that's been heavily subsidized by massive VC investments.

bbcbasic 10y ago
> It was that conversation that made me realize how we've become accustomed to the quality and price of software that's been heavily subsidised by massive VC investments. Not to mention open source, sponsored by big companies, universities and passionate individual contributors. E.g. try and sell a compiler, a JS framework or an IDE.
- danmaz74 10y ago
  > or an IDE I think JetBrains is doing fine...
  - mark242 10y ago
    Didn't they switch to the subscription model because people weren't upgrading enough to sustain the business?
    - stuartaxelowen 10y ago
      And it worked.
  - tajen 10y ago
    and Atlassian is selling fine when there are heaps of open-source bugtrackers, wiki, git hosters, build engines and chat tools.
- ForHackernews 10y ago
  This is one of several reasons why the GPL is a great license for FLOSS. You can GPL-license your software and contribute to the community, while offering alternative commercial licenses to companies that want them. If you use a totally-permissive BSD-style license, you're stuck trying to charge for a support contract or custom plugins or something.
  - koolba 10y ago
    Or AGPL if the market direction is going to be providing a hosted service running your product.
  - hyperpallium 10y ago
    I sold my software dual-licensed GPL, and a deal-breaker for me was how long it took companies to actually purchase. They had the software, used it, and so didn't have a compelling need to buy, right now. Though they all did actually buy in the end, and there was enough income to live on, I found the uncertainty very distracting and not worth it.
  - golergka 10y ago
    What's stopping other companies from using your GPL software in their proprietary stuff without telling anyone? Not every company out there is a startup who needs to be sparkling clean to pass due diligence for the next round, acquisition or IPO. A lot of companies out there are perfectly fine with a little bit of cheating here and there — I would actually say that most of them are. Especially when you remember about the world outside of US.
    - deleted 10y ago
      [deleted]
    - nine_k 10y ago
      It gives you a future market share via so many people using your software for free. They won't pay if it weren't free anyway, but would use a competing piece of software. That is, without the free (as in freedom) version, few would even consider paying for a commercial license. Did you ever think why Microsoft is so lazy about enforcing the end-user Windows licenses on non-business customers? Maybe they want kids get used to to running Windows at home, and expect it in a work environment, and value this higher than the lost revenue from "pirates"?
yesimahuman 10y ago
Well my company is paying GitHub a lot of money right now so I'm not sure this really applies to customers that are real businesses.
- josho 10y ago
  Agreed. B2B still knows what software and support really cost, and they are willing to pay when it solves their needs. But, at the individual level people just don't realize it. Heck, look at all the free software your new Mac comes with.
  - dsacco 10y ago
    That software is free because Apple has a strong incentive to develop a "platform" with which to sell their comparatively expensive hardware. In that context, I wouldn't say people don't realize that real software has a significant cost. That may be the case, but I'd sooner say the market values the software's complements (in this case, hardware, robust compatibility and a healthy development ecosystem) more than the software itself. One perspective is that people are trained to be too cheap because of market incentives, but another perspective can be even well-informed consumers make a reasoned pricing decision that concludes with free or low cost software. And if you want to make a normative point, you can say that this is bad for small companies trying to make software for these consumers, but you can also say that consumers are benefiting more by purchasing the software's complements rather than the software itself.
- tlogan 10y ago
  It is funny that mention this: "paying GitHub a lot of money right now". Believe me: you are not paying as much as you should. Ask some people who were dev managers in 1990s how much was a single ClearCase license... The software is so cheap now...
  - flamedoge 10y ago
    > $4125/license. jesus wtf
  - 10y ago
devoply 10y ago
At that point just throw down the gauntlet and ask do you want that $165 or not? The price is irrelevant and the value is apparent. If not then move on. The guy's not being reasonable. You have to realize that consumers are insane. Treat them like mental patients.
dsacco 10y ago
I agree with the idea that venture capitalists alter ("distort" is a loaded term) the market in their favor. That's part of the natural process of systems commoditizing their complements. But I really think that you characterize this in an uncharitable way with your example, which I have difficulty believing as it was stated. If your lead really understood that they would "immediately earn a 5x return with no risk", and that was the truth, they would be cartoonishly foolish to not take that offer. Furthermore, wouldn't that mean your company could be printing money with its results? It's hard for me to believe a rational customer wouldn't take that deal, so either they didn't understand or believe that would be the result, or you're exaggerating here for the benefit of your point. I know it's easy to think I'm just griefing you over this, but I'm trying to make a point in good faith. There are certainly legitimate reasons to dislike the profit incentives that venture capitalists encourage, but I think you portray their impact on small companies as unrealistically bad (and perhaps your product in a more favorable light than is warranted), to the detriment of a discussion about it. None of this is personal, mind you. Just a comment.
- josho 10y ago
  Yes, I purposely choose colourful language. Github is an amazing product, in part because they had $66M to spend making it amazing. Think about all of our other favourite pieces of software, and many will have the same story. This results in the marketplace having unrealistic expectations for software quality when the market size won't sustain VC levels of investment. Regarding your disbelief, you assume (like economists) that consumers are rational actors. They aren't. There are 2 reasons why the customer pushed back. One, they thought the price was unfair--e.g. "Hey MS Office costs me $5/mth, and your software which does less costs me several hundred a month, you charge too much." Second, the customer is already earning a significant salary, so an extra $5,000 a year isn't meaningful for him. (Yeh, crazy isn't it). This is our first sales effort and we are learning how to position the product to overcome these objections--part of the problem was that we didn't anticipate push back and didn't properly position the product to avoid these concerns.
  - dsacco 10y ago
    I don't assume that consumers are rational actors, at least not in the aggregate or binary sense that the term is usually used. Theories involving rational actors usually use the terminology in groups, whereas I'm talking about an individual customer and using rationality as more of a sliding scale with percentiles. In this case, it seemed incredible to me that someone would be so irrational on that scale. However, you did clarify your example, which makes it easier to accept. Phrased this way, it seems as though a potential upside of $5,000 wasn't worth it for someone who is skeptical of your product and has free alternatives. Stated this way, I can understand how VCs cause market incentives that make your job more difficult.
maxxxxx 10y ago
That's true. VC companies are killing a lot of otherwise viable businesses because they can undercut prices. Also, it seems that a lot of VC companies these days are not even trying to be real businesses as in taking in more money than they spend.
cpeterso 10y ago
Maybe you're charging too little? Price is a signal of product value. The customer might be wary of getting an immediate 5x return on their $35 investment, thinking there is some trick in the value proposition. If your price matched their immediate return ($200?) then they might be more receptive because the value equation is balanced.
- abfan1127 10y ago
  or the cheapsters won't even call...
  - jessaustin 10y ago
    Ideally one could segment the market to charge one type of customer $35 and another type $200.
deleted 10y ago
[deleted]
heartbreak 10y ago
Now try selling a $35 mobile app in the world of $0.99 and ad-supported free apps.
- Nition 10y ago
  TuneLab[1] is doing OK as far as I know at a $500USD price point on the App Store. [1] https://itunes.apple.com/nz/app/tunelab-piano-tuner/id335568329?mt=8 https://itunes.apple.com/nz/app/tunelab-piano-tuner/id335568...
smoyer 10y ago
I've got a pile of cash I'd like to run through your 5X machine ... please?
kevin_thibedeau 10y ago
If your app truly is such a money machine with guaranteed returns why aren't you using it privately to enrich yourself?
martindale 10y ago
> a 5x return with no risk to them There's something strange going on here. What software do you produce?
- __derek__ 10y ago
  I had the same thought. That line sounds eerily like a Ponzi scheme.
  - bbcbasic 10y ago
    Probably works by leveraging the customers existing business. E.g. like google ads could give a dentist a 5x.
- josho 10y ago
  It's for primary care physicians outside of the US. So, we are dealing with the following: - An industry that has a slight disdain for maximizing profit (healthcare here is a public good) - The physician in question is already running at 100%, so the extra workload to make an extra $5k/yr isn't worth it for him. - Other docs in the clinic are all over our solution and are seeing the increase in their billings So, this doc, and another in the clinic looked at the fee and said they'd rather not realize the extra revenue because they thought someone else should be paying the software fee (the someone else being the government that runs healthcare).
pryelluw 10y ago
You need two more price options. One for a little less and one for significantly more. Say $29, $35, and $99. Remove / add something to the other prices. People just want options. Give them some. Oh, and provide a 10% discount of they buy the $99 version NOW. Offer ends soon. ;)
- josho 10y ago
  Good point, I never thought of applying that technique here, it always struck me as a no brainer decision. The reality is you need to hear a few objections to start understanding the mind of the prospect and how to counter their objections.
  - pryelluw 10y ago
    Do understand that when people object to price they are mostly ready to buy. By providing them with more than one pricing option you can get around the obstacle. The issue lies in making it expensive enough so that you dont get annoying cheap users. Make sure to remove support from the lowest priced option. :) Email me if you want help on this. No BS or strings. Check profile.
gooserock 10y ago
> how we've become accustomed to the quality and price of software that's been heavily subsidized by massive VC investments. See: Uber

by josho 10y ago

bbcbasic 10y ago

> It was that conversation that made me realize how we've become accustomed to the quality and price of software that's been heavily subsidised by massive VC investments. Not to mention open source, sponsored by big companies, universities and passionate individual contributors. E.g. try and sell a compiler, a JS framework or an IDE.

danmaz74 10y ago
> or an IDE I think JetBrains is doing fine...
- mark242 10y ago
  Didn't they switch to the subscription model because people weren't upgrading enough to sustain the business?
  - stuartaxelowen 10y ago
    And it worked.
- tajen 10y ago
  and Atlassian is selling fine when there are heaps of open-source bugtrackers, wiki, git hosters, build engines and chat tools.
ForHackernews 10y ago
This is one of several reasons why the GPL is a great license for FLOSS. You can GPL-license your software and contribute to the community, while offering alternative commercial licenses to companies that want them. If you use a totally-permissive BSD-style license, you're stuck trying to charge for a support contract or custom plugins or something.
- koolba 10y ago
  Or AGPL if the market direction is going to be providing a hosted service running your product.
- hyperpallium 10y ago
  I sold my software dual-licensed GPL, and a deal-breaker for me was how long it took companies to actually purchase. They had the software, used it, and so didn't have a compelling need to buy, right now. Though they all did actually buy in the end, and there was enough income to live on, I found the uncertainty very distracting and not worth it.
- golergka 10y ago
  What's stopping other companies from using your GPL software in their proprietary stuff without telling anyone? Not every company out there is a startup who needs to be sparkling clean to pass due diligence for the next round, acquisition or IPO. A lot of companies out there are perfectly fine with a little bit of cheating here and there — I would actually say that most of them are. Especially when you remember about the world outside of US.
  - deleted 10y ago
    [deleted]
  - nine_k 10y ago
    It gives you a future market share via so many people using your software for free. They won't pay if it weren't free anyway, but would use a competing piece of software. That is, without the free (as in freedom) version, few would even consider paying for a commercial license. Did you ever think why Microsoft is so lazy about enforcing the end-user Windows licenses on non-business customers? Maybe they want kids get used to to running Windows at home, and expect it in a work environment, and value this higher than the lost revenue from "pirates"?

yesimahuman 10y ago

Well my company is paying GitHub a lot of money right now so I'm not sure this really applies to customers that are real businesses.

josho 10y ago
Agreed. B2B still knows what software and support really cost, and they are willing to pay when it solves their needs. But, at the individual level people just don't realize it. Heck, look at all the free software your new Mac comes with.
- dsacco 10y ago
  That software is free because Apple has a strong incentive to develop a "platform" with which to sell their comparatively expensive hardware. In that context, I wouldn't say people don't realize that real software has a significant cost. That may be the case, but I'd sooner say the market values the software's complements (in this case, hardware, robust compatibility and a healthy development ecosystem) more than the software itself. One perspective is that people are trained to be too cheap because of market incentives, but another perspective can be even well-informed consumers make a reasoned pricing decision that concludes with free or low cost software. And if you want to make a normative point, you can say that this is bad for small companies trying to make software for these consumers, but you can also say that consumers are benefiting more by purchasing the software's complements rather than the software itself.
tlogan 10y ago
It is funny that mention this: "paying GitHub a lot of money right now". Believe me: you are not paying as much as you should. Ask some people who were dev managers in 1990s how much was a single ClearCase license... The software is so cheap now...
- flamedoge 10y ago
  > $4125/license. jesus wtf
- 10y ago

devoply 10y ago

At that point just throw down the gauntlet and ask do you want that $165 or not? The price is irrelevant and the value is apparent. If not then move on. The guy's not being reasonable. You have to realize that consumers are insane. Treat them like mental patients.

dsacco 10y ago

I agree with the idea that venture capitalists alter ("distort" is a loaded term) the market in their favor. That's part of the natural process of systems commoditizing their complements. But I really think that you characterize this in an uncharitable way with your example, which I have difficulty believing as it was stated. If your lead really understood that they would "immediately earn a 5x return with no risk", and that was the truth, they would be cartoonishly foolish to not take that offer. Furthermore, wouldn't that mean your company could be printing money with its results? It's hard for me to believe a rational customer wouldn't take that deal, so either they didn't understand or believe that would be the result, or you're exaggerating here for the benefit of your point. I know it's easy to think I'm just griefing you over this, but I'm trying to make a point in good faith. There are certainly legitimate reasons to dislike the profit incentives that venture capitalists encourage, but I think you portray their impact on small companies as unrealistically bad (and perhaps your product in a more favorable light than is warranted), to the detriment of a discussion about it. None of this is personal, mind you. Just a comment.

josho 10y ago
Yes, I purposely choose colourful language. Github is an amazing product, in part because they had $66M to spend making it amazing. Think about all of our other favourite pieces of software, and many will have the same story. This results in the marketplace having unrealistic expectations for software quality when the market size won't sustain VC levels of investment. Regarding your disbelief, you assume (like economists) that consumers are rational actors. They aren't. There are 2 reasons why the customer pushed back. One, they thought the price was unfair--e.g. "Hey MS Office costs me $5/mth, and your software which does less costs me several hundred a month, you charge too much." Second, the customer is already earning a significant salary, so an extra $5,000 a year isn't meaningful for him. (Yeh, crazy isn't it). This is our first sales effort and we are learning how to position the product to overcome these objections--part of the problem was that we didn't anticipate push back and didn't properly position the product to avoid these concerns.
- dsacco 10y ago
  I don't assume that consumers are rational actors, at least not in the aggregate or binary sense that the term is usually used. Theories involving rational actors usually use the terminology in groups, whereas I'm talking about an individual customer and using rationality as more of a sliding scale with percentiles. In this case, it seemed incredible to me that someone would be so irrational on that scale. However, you did clarify your example, which makes it easier to accept. Phrased this way, it seems as though a potential upside of $5,000 wasn't worth it for someone who is skeptical of your product and has free alternatives. Stated this way, I can understand how VCs cause market incentives that make your job more difficult.

maxxxxx 10y ago

That's true. VC companies are killing a lot of otherwise viable businesses because they can undercut prices. Also, it seems that a lot of VC companies these days are not even trying to be real businesses as in taking in more money than they spend.

cpeterso 10y ago

Maybe you're charging too little? Price is a signal of product value. The customer might be wary of getting an immediate 5x return on their $35 investment, thinking there is some trick in the value proposition. If your price matched their immediate return ($200?) then they might be more receptive because the value equation is balanced.

abfan1127 10y ago
or the cheapsters won't even call...
- jessaustin 10y ago
  Ideally one could segment the market to charge one type of customer $35 and another type $200.

deleted 10y ago

[deleted]

heartbreak 10y ago

Now try selling a $35 mobile app in the world of $0.99 and ad-supported free apps.

Nition 10y ago
TuneLab[1] is doing OK as far as I know at a $500USD price point on the App Store. [1] https://itunes.apple.com/nz/app/tunelab-piano-tuner/id335568329?mt=8 https://itunes.apple.com/nz/app/tunelab-piano-tuner/id335568...

smoyer 10y ago

I've got a pile of cash I'd like to run through your 5X machine ... please?

kevin_thibedeau 10y ago

If your app truly is such a money machine with guaranteed returns why aren't you using it privately to enrich yourself?

martindale 10y ago

> a 5x return with no risk to them There's something strange going on here. What software do you produce?

__derek__ 10y ago
I had the same thought. That line sounds eerily like a Ponzi scheme.
- bbcbasic 10y ago
  Probably works by leveraging the customers existing business. E.g. like google ads could give a dentist a 5x.
josho 10y ago
It's for primary care physicians outside of the US. So, we are dealing with the following: - An industry that has a slight disdain for maximizing profit (healthcare here is a public good) - The physician in question is already running at 100%, so the extra workload to make an extra $5k/yr isn't worth it for him. - Other docs in the clinic are all over our solution and are seeing the increase in their billings So, this doc, and another in the clinic looked at the fee and said they'd rather not realize the extra revenue because they thought someone else should be paying the software fee (the someone else being the government that runs healthcare).

pryelluw 10y ago

You need two more price options. One for a little less and one for significantly more. Say $29, $35, and $99. Remove / add something to the other prices. People just want options. Give them some. Oh, and provide a 10% discount of they buy the $99 version NOW. Offer ends soon. ;)

josho 10y ago
Good point, I never thought of applying that technique here, it always struck me as a no brainer decision. The reality is you need to hear a few objections to start understanding the mind of the prospect and how to counter their objections.
- pryelluw 10y ago
  Do understand that when people object to price they are mostly ready to buy. By providing them with more than one pricing option you can get around the obstacle. The issue lies in making it expensive enough so that you dont get annoying cheap users. Make sure to remove support from the lowest priced option. :) Email me if you want help on this. No BS or strings. Check profile.

gooserock 10y ago

> how we've become accustomed to the quality and price of software that's been heavily subsidized by massive VC investments. See: Uber