3 ms·

> The people that want those product features subsidize the people who don't Surely any company doing that would be spending profits on less profitable custome

> The people that want those product features subsidize the people who don't Surely any company doing that would be spending profits on less profitable customers which is not economically sensible. See the box on page 2 of https://regulationbodyofknowledge.org/wp-content/uploads/2013/03/Irwin_Price_Structures_Cross.pdf https://regulationbodyofknowledge.org/wp-content/uploads/201... Cross-subsidisation can occur due to regulations or a company trying to monopolise a market. Pricing a product depends on how much you can charge and variable costs, not so much on how much it cost to develop - which as you point out leads to price discrimination - where it looks like one group is subsidising the other but maybe not in reality. I would like to see a model of the marginal costs and ideal decisions. Deciding to build features for higher paying clients only makes profits if those features are paid for by those clients. Other clients might get those features but it isn't "subsidisation" - however I'm not sure what a better word is! It isn't free-riding or consumer surplus.

bruce511 2y ago
It's called market segmentation. The classic analogy is airline seats. Ultimately the job of the airline is to get me from A to B. They do just that for First Class and sub-economy. But for more money you can have snacks etc. Airlines offer add-ons that cost them real money (checked bags) and things that don't (seat selection.) They allow the customer to decide which features they want and which they don't. Not all seats generate the same profit, but all seats generate some profit above marginal cost. (Usually some number of seats needs to be filled before the flight makes a profit, but that's a different equation.) With software there's naturally some segmentation, and so the smart company tries to capture that value. Equally some segments want different (expensive) things like Support (and can afford it) so that needs to be on the table to win that customer in the first place. A segmented offering is inevitable, at which point you then have to decide who does the segmenting. The client? Or do you have a salesperson to help them? There's no right answer, but usually it depends on the product price. If I'm buying an airline seat I can figure it out [1]. If I'm buying an airplane probably not. [1] I'm old enough to have lived in a time when there were specialists necessary to buy an airline seat.

bruce511 2y ago

It's called market segmentation. The classic analogy is airline seats. Ultimately the job of the airline is to get me from A to B. They do just that for First Class and sub-economy. But for more money you can have snacks etc. Airlines offer add-ons that cost them real money (checked bags) and things that don't (seat selection.) They allow the customer to decide which features they want and which they don't. Not all seats generate the same profit, but all seats generate some profit above marginal cost. (Usually some number of seats needs to be filled before the flight makes a profit, but that's a different equation.) With software there's naturally some segmentation, and so the smart company tries to capture that value. Equally some segments want different (expensive) things like Support (and can afford it) so that needs to be on the table to win that customer in the first place. A segmented offering is inevitable, at which point you then have to decide who does the segmenting. The client? Or do you have a salesperson to help them? There's no right answer, but usually it depends on the product price. If I'm buying an airline seat I can figure it out [1]. If I'm buying an airplane probably not. [1] I'm old enough to have lived in a time when there were specialists necessary to buy an airline seat.