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Definitely a brilliant essay, but I might take issue with a possible interpretation of: "It's very dangerous to let anyone fly under you. If you have the cheap

Definitely a brilliant essay, but I might take issue with a possible interpretation of: "It's very dangerous to let anyone fly under you. If you have the cheapest, easiest product, you'll own the low end. And if you don't, you're in the crosshairs of whoever does." I definitely understand his point, but I am afraid others might not. This sort of mentality can lead you to under price your services greatly. I see it everyday. Our customers sell downloadables and just the other day some guy was trying to sell a brilliantly manicured and useful spreadsheet for $2. His competition charged $10-$15+ and looked 10x more confusing and horrible. He said he wanted to "sell the most possible and low price was the way to do it". I think I may talked him into raising his price and testing a few different pricing schemes. In short: "owning the low-end" isn't always the best way to go about it, you might be leaving a lot of money on the table and selecting a different set of customers.

SwellJoe 16y ago
I have spent a lot of time thinking about this. When we started Virtualmin, we had one low-end competitor that charged slightly less (the software did quite a bit less) and three major high end competitors that were higher than ours (and have close enough to feature parity) prices by 25-50%. I figured we were right in the sweet spot for a new product: not the cheap option, since we can do a lot more than the cheap option, but a better buy than the big options. Soon after we started, a new very low end competitor came onto the scene (about a third of our lowest initial price, and without recurring fees, while we have annual renewals). And, one of the big three high end competitors got acquired and discontinued. Same number of competitors (not counting a bunch of also ran products that aren't competitive for whatever reason), but now we're right in the middle on pricing and at the top on capability. Since we're talking about people flying under you, I'll talk about the low end option. From what I can tell, that low end product sold about four times what we sold during the time the company existed, though revenue would have been about the same as ours during that time (because of recurring revenue). So, this company had four times the customers to support, with the same amount of resources. Of course, if you can get users helping users, this becomes less of an issue and more users is better. And, customers that are happy are a much better marketing value than buying ads or for trade show booths or whatever else. Our situation is further complicated by the existence of Virtualmin GPL, which is the really low priced option in the market (free). Virtualmin GPL probably has about 30 times the market share of Virtualmin Professional, and is probably in third place in the market overall now (possibly fourth, but definitely gaining). The company behind the low price option went out of business, and the low end product has since become free. Development has dropped off significantly, and its market share seems to be slowly shrinking. In the end of all my contemplating on the subject, we've kept our pricing pretty much exactly the same: Middle of the pack, but closer to the high end than the low end. We figure the free product will mop up the really cheap folks, and when they start making money, we'll probably get some of it for a Virtualmin Professional license. What I'm trying to say is: It's hard to know the right price. Flying under your competitors is great, if you have some significant technical advantage they don't have (like you have a web-based service vs. their installable boxed application, or you have a much simpler product that can answer the needs of a specific niche without the complexity of your competitors). But, if you're building a complicated product that has only marginal cost advantages over your competition, it's probably dangerous to significantly undercharge. Sometimes there are reasons for the prices you see.
- jseliger 16y ago
  In other words, no one knows what the right price is: http://joelonsoftware.com/articles/CamelsandRubberDuckies.html http://joelonsoftware.com/articles/CamelsandRubberDuckies.ht... . I suspect most people luck into the "right" price—or don't.
  - SwellJoe 16y ago
    Yeah, honestly, our pricing was set by wild-assed guessing. I'm still not sure it's high (or low) enough.

SwellJoe 16y ago

I have spent a lot of time thinking about this. When we started Virtualmin, we had one low-end competitor that charged slightly less (the software did quite a bit less) and three major high end competitors that were higher than ours (and have close enough to feature parity) prices by 25-50%. I figured we were right in the sweet spot for a new product: not the cheap option, since we can do a lot more than the cheap option, but a better buy than the big options. Soon after we started, a new very low end competitor came onto the scene (about a third of our lowest initial price, and without recurring fees, while we have annual renewals). And, one of the big three high end competitors got acquired and discontinued. Same number of competitors (not counting a bunch of also ran products that aren't competitive for whatever reason), but now we're right in the middle on pricing and at the top on capability. Since we're talking about people flying under you, I'll talk about the low end option. From what I can tell, that low end product sold about four times what we sold during the time the company existed, though revenue would have been about the same as ours during that time (because of recurring revenue). So, this company had four times the customers to support, with the same amount of resources. Of course, if you can get users helping users, this becomes less of an issue and more users is better. And, customers that are happy are a much better marketing value than buying ads or for trade show booths or whatever else. Our situation is further complicated by the existence of Virtualmin GPL, which is the really low priced option in the market (free). Virtualmin GPL probably has about 30 times the market share of Virtualmin Professional, and is probably in third place in the market overall now (possibly fourth, but definitely gaining). The company behind the low price option went out of business, and the low end product has since become free. Development has dropped off significantly, and its market share seems to be slowly shrinking. In the end of all my contemplating on the subject, we've kept our pricing pretty much exactly the same: Middle of the pack, but closer to the high end than the low end. We figure the free product will mop up the really cheap folks, and when they start making money, we'll probably get some of it for a Virtualmin Professional license. What I'm trying to say is: It's hard to know the right price. Flying under your competitors is great, if you have some significant technical advantage they don't have (like you have a web-based service vs. their installable boxed application, or you have a much simpler product that can answer the needs of a specific niche without the complexity of your competitors). But, if you're building a complicated product that has only marginal cost advantages over your competition, it's probably dangerous to significantly undercharge. Sometimes there are reasons for the prices you see.

jseliger 16y ago
In other words, no one knows what the right price is: http://joelonsoftware.com/articles/CamelsandRubberDuckies.html http://joelonsoftware.com/articles/CamelsandRubberDuckies.ht... . I suspect most people luck into the "right" price—or don't.
- SwellJoe 16y ago
  Yeah, honestly, our pricing was set by wild-assed guessing. I'm still not sure it's high (or low) enough.