4 ms·

Interesting. How does this fit with the common advice (from patio11, etc.) that developers generally underprice their software?

by nsgi 11y ago

scriptman 11y ago
I'm not an expert like patio11 or others, but I think that it could be that developers aren't always as interested in economics as they should be and this can lead to not understanding the behaviour of markets. Technically, developers have to underprice their software to be successful. This is true for any product or service that you want to sell. Particularly for productivity focused software, the end user has to derive signficantly more in value than they pay in direct costs to the developer. In general, in my experience involved with b2b software/services, people want to being saving 20-30% of their time or money to strongly consider changing their existing habits. The reason for this is that there are also indirect costs that the end user incurs that developers don't always take into account in their cost models. End users incur costs in learning new software products, there are ongoing cognitive load costs in remembering how to use the product and there are opportunity costs in choosing your products over something else, not even necessarily in the same market. There is a cost that the user incurs in taking a risk that your software will solve their problem before they really understand its full capability. Even taking up an icon space on their phone/tablet/desktop has a cost to the user as it's a place they can't put a different app. Your app takes up harddrive space that the user has paid for and your app uses up some of their bandwidth. Finally, you aren't just competing against other software vendors in your market, you are competing against every other thing in any market the end user might want to spend their money on. End users have a limited amount of money and time and there are a huge amount of things they can spend their money on. You can't accurately measure any of these indirect costs, but you know they are there and you can estimate them. When you take into account the indirect costs suddenly there aren't as many dollars left on the table that developers aren't charging for. Another point is that the closer you price your software to its marginal utility to the end user, the more likely the end user is going to shop around looking for alternatives. You open yourself up to competition which could increase your marketing expenses. You could also suffer more churn, which is expensive to you. The point is, you want your users feeling like they are getting amazing value from your product. You don't want them feeling like your product costs just a bit less than the value they derive (which may seem like the most efficient price to you) because if that's the case your business is actually teetering over a precipice and any sudden shock could push you over the edge with many customers leaving all at once. Loyal, happy customers paying you recurring revenue buffing up your cash flow is worth more than anything.
Chris_Newton 11y ago
It’s worth remembering that when people give that advice on HN, it’s usually in a business-to-business context. Business-to-consumer sales are a different thing entirely, with different motivations and often a different purchasing process. Consumer purchasing behaviour can be highly price-sensitive (and affected by numerous other factors as well as price) so for software or a service with low marginal costs, offering lower prices with greater numbers of sales can easily work out better than higher prices but fewer sales.
e12e 11y ago
I'm no expert either, but I don't think this only applies in b2b scenarios. There's some old anecdotes about new restaurants pricing themselves too low, failing to gain customers (due to being perceived as too cheap/must be low quality). After raising prices, serving the same food, they suddenly got more customers. Similar stories for retail (yes, anecdotes are not data -- but AFAIK this kind of thing is marketing 101). I've not seen any studies on this wrt app stores, but my impression is that you can be completely free (and it helps with a brand name, like Autocad or Adobe) -- or you can be a little pricey with no free trial -- and still be perceived as being "high quality". Note that big companies offering great apps for free is most likely a case of predatory pricing -- they might not have any ambition of making money from the apps ... ever. But if it funnels a certain percentage into their for-pay other apps/services that might be an acceptable price to pay for marketing. Add a free trial, freemium, or low price point -- and your app is likely to be judged more harshly. The price points/perceptions are likely a little different in the various app stores too, and vary a bit from country to country (eg: median salaries (and median prices for a cup of coffee) are likely to affect what people think are reasonable value for money). I do think many developers dream of getting a big number of users, and tend to overestimate how quickly success should come. I would guess that getting a hundred paying users should be an important milestone, and depending on the app, one might need to keep those around for quite a while (a year?) before one might really start to see an effect of word-of-mouth in terms of sales. This isn't nearly as sexy as getting to one billion users in a year, but probably more realistic?
nostrademons 11y ago
Patio11 is working in a different domain than mass-market products. He deals with niches; by raising your price in a niche, you find a different niche that is willing to pay more, which by definition will make you more profit. This basically never works with the mass market, because the mass market, by definition, contains all those people who can't afford to pay more. To make a mass-market product work, you basically need a vision as to how everyone on earth should be doing things differently than they're currently doing them, and the sales and product skills to convince users of that vision.

Interesting. How does this fit with the common advice (from patio11, etc.) that developers generally underprice their software?

by nsgi 11y ago

Interesting. How does this fit with the common advice (from patio11, etc.) that developers generally underprice their software?

scriptman 11y ago

I'm not an expert like patio11 or others, but I think that it could be that developers aren't always as interested in economics as they should be and this can lead to not understanding the behaviour of markets. Technically, developers have to underprice their software to be successful. This is true for any product or service that you want to sell. Particularly for productivity focused software, the end user has to derive signficantly more in value than they pay in direct costs to the developer. In general, in my experience involved with b2b software/services, people want to being saving 20-30% of their time or money to strongly consider changing their existing habits. The reason for this is that there are also indirect costs that the end user incurs that developers don't always take into account in their cost models. End users incur costs in learning new software products, there are ongoing cognitive load costs in remembering how to use the product and there are opportunity costs in choosing your products over something else, not even necessarily in the same market. There is a cost that the user incurs in taking a risk that your software will solve their problem before they really understand its full capability. Even taking up an icon space on their phone/tablet/desktop has a cost to the user as it's a place they can't put a different app. Your app takes up harddrive space that the user has paid for and your app uses up some of their bandwidth. Finally, you aren't just competing against other software vendors in your market, you are competing against every other thing in any market the end user might want to spend their money on. End users have a limited amount of money and time and there are a huge amount of things they can spend their money on. You can't accurately measure any of these indirect costs, but you know they are there and you can estimate them. When you take into account the indirect costs suddenly there aren't as many dollars left on the table that developers aren't charging for. Another point is that the closer you price your software to its marginal utility to the end user, the more likely the end user is going to shop around looking for alternatives. You open yourself up to competition which could increase your marketing expenses. You could also suffer more churn, which is expensive to you. The point is, you want your users feeling like they are getting amazing value from your product. You don't want them feeling like your product costs just a bit less than the value they derive (which may seem like the most efficient price to you) because if that's the case your business is actually teetering over a precipice and any sudden shock could push you over the edge with many customers leaving all at once. Loyal, happy customers paying you recurring revenue buffing up your cash flow is worth more than anything.

Chris_Newton 11y ago

It’s worth remembering that when people give that advice on HN, it’s usually in a business-to-business context. Business-to-consumer sales are a different thing entirely, with different motivations and often a different purchasing process. Consumer purchasing behaviour can be highly price-sensitive (and affected by numerous other factors as well as price) so for software or a service with low marginal costs, offering lower prices with greater numbers of sales can easily work out better than higher prices but fewer sales.

e12e 11y ago

I'm no expert either, but I don't think this only applies in b2b scenarios. There's some old anecdotes about new restaurants pricing themselves too low, failing to gain customers (due to being perceived as too cheap/must be low quality). After raising prices, serving the same food, they suddenly got more customers. Similar stories for retail (yes, anecdotes are not data -- but AFAIK this kind of thing is marketing 101). I've not seen any studies on this wrt app stores, but my impression is that you can be completely free (and it helps with a brand name, like Autocad or Adobe) -- or you can be a little pricey with no free trial -- and still be perceived as being "high quality". Note that big companies offering great apps for free is most likely a case of predatory pricing -- they might not have any ambition of making money from the apps ... ever. But if it funnels a certain percentage into their for-pay other apps/services that might be an acceptable price to pay for marketing. Add a free trial, freemium, or low price point -- and your app is likely to be judged more harshly. The price points/perceptions are likely a little different in the various app stores too, and vary a bit from country to country (eg: median salaries (and median prices for a cup of coffee) are likely to affect what people think are reasonable value for money). I do think many developers dream of getting a big number of users, and tend to overestimate how quickly success should come. I would guess that getting a hundred paying users should be an important milestone, and depending on the app, one might need to keep those around for quite a while (a year?) before one might really start to see an effect of word-of-mouth in terms of sales. This isn't nearly as sexy as getting to one billion users in a year, but probably more realistic?

nostrademons 11y ago

Patio11 is working in a different domain than mass-market products. He deals with niches; by raising your price in a niche, you find a different niche that is willing to pay more, which by definition will make you more profit. This basically never works with the mass market, because the mass market, by definition, contains all those people who can't afford to pay more. To make a mass-market product work, you basically need a vision as to how everyone on earth should be doing things differently than they're currently doing them, and the sales and product skills to convince users of that vision.