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Actually, it's pretty simple: supply and demand. My experience is that supply and demand only explains/models pricing when you have an efficient market. When t
by raganwald 16y ago
Actually, it's pretty simple: supply and demand.
My experience is that supply and demand only explains/models pricing when you have an efficient market. When there are information asymmetries or actors attempting to impose inefficiencies in a market, supply and demand breaks badly.
To quote one of Joel's best posts:
Software is priced three ways: free, cheap, and dear.
1. Free. Open source, etc. Not relevant to the current discussion. Nothing to see here. Move along.
2. Cheap. $10 - $1000, sold to a very large number of people at a low price without a salesforce. Most shrinkwrapped consumer and small business software falls into this category.
3. Dear. $75,000 - $1,000,000, sold to a handful of rich big companies using a team of slick salespeople that do six months of intense PowerPoint just to get one goddamn sale. The Oracle model.
All three methods work fine.
Notice the gap? There's no software priced between $1000 and $75,000. I'll tell you why. The minute you charge more than $1000 you need to get serious corporate signoffs. You need a line item in their budget. You need purchasing managers and CEO approval and competitive bids and paperwork. So you need to send a salesperson out to the customer to do PowerPoint, with his airfare, golf course memberships, and $19.95 porn movies at the Ritz Carlton. And with all this, the cost of making one successful sale is going to average about $50,000. If you're sending salespeople out to customers and charging less than $75,000, you're losing money.
http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
With behaviour like that, supply and demand is absolutely the least important factor in making certain B2B sales. Doubling the supply of "dearly priced" software can't drive the price below $75,000 because it costs $50,000 to make a sale. What's interesting is the opportunity to innovate to make the jump from "dear" to "cheap." That's a business model problem, not a supply problem. In my uninformed and inexpert opinion.
- tedsbardella 16y agoI just got asked about a database program for pawnshops - they charge 3500 for the package and 700 a year for support.
- raganwald 16y agoTwo things: Please understand that I'm talking about large trends here, and therefore when I say things like "nobody" I really mean fewer than 10,000,000 people," and so on and so forth. http://www.joelonsoftware.com/articles/APIWar.html http://www.joelonsoftware.com/articles/APIWar.html Also, I explicitly said "certain" B2B sales. Joel's conjectures about pricing and purchasing behaviour do not apply to everyone, just to those organizations that have a certain behaviour around making purchasing decisions.
- martianpenguin 16y agothey should probably charge more... every pawn shop I've been to is subject to different laws based on every level of government. any software would have to be highly specialized.
- kennywinker 16y agoAgreed! The world of POS and other small business database software is HUGE. The last non-coding job I had was working in retail and the boss had just laid down something like $25,000 for the worst point of sale system conceivable. Most of that was support, training, and installation.
- ericd 16y agoThat highlights a big issue, though - anything in that market will necessarily be a very high-touch sales process and therefore very expensive, unless it's absurdly easy to use and install. If you can solve that issue (Square seems to be having a crack at it), you'll probably be extremely successful.
- c00p3r 16y ago1. Free. Open source, etc. Not relevant to the current discussion. Nothing to see here. Move along. Time to do some reality checks.. ^_^
- illumen 16y agoSimples. Charge less than $1000 multiple times ;) aka, saas. Another way. Start a relationship cheaply or for free, and then afterwards it's much cheaper to sell to your customers. No $50k salesperson then. There are lots of other ways to do it. You just need to be inventive.
- DarkShikari 16y agoThe typical initial deal price for licensing deals by my startup (x264 LLC) is around $5000-$10000. Per-unit royalties are extra (though the initial price includes a bunch of free units). The vast majority of our deals fall smack in the "$1000-$75000" range.
- stretchwithme 16y agono. you don't exist. Can't you see that? :-) now tell me your birthday so I can explain to you that its another day entirely.