We can charge when your product has more compelling features than the competition.
Why can’t we charge before? Because once the company has recovered the up-front investment necessary to create a product (which most have done on traditional products), profitability for them would be only to charge for the cost of delivering an additional copy. Since the product is delivered over the Internet, costs almost disappear because it is neither packaged nor shipped.
This is why we have so many free software products on the Internet.If this is true, how can MS have such a high margin? Microsoft already sunk their investments (fixed cost) and if newcomer dares to compete, they can be caught in devastating price war.If your are thinking of spending an afternoon calculating your cost-based pricing, please don’t waste your time. If you want set your prices according to the competition, please don’t. The only viable strategy is to set prices according to the value a customer places on the software.In the way the software industry has evolved, let’s think the other way around: When can you give your products for free?
- Building Awareness (make sure you have a marketing budget).
- Building a customer base (make sure you have this as a promotion in your financial model) to sell extensions, upgrades and services.
- In exchange of advertisements.
- Protecting our main products like Explorer, in order to prevent Netscape from gaining control over computer desktops.
Of course, if all we do is give software away for free, we are betting to win the lottery (Skype, Google) or are going out of business soon.The final question you may have today is, “How much do I need to develop a product?” The amount of money you need is at least as much in order to produce a product more advanced than the competition. Don’t even think of trying to recover with a product as good as the competition.
on 08 Sep 2007 at 4:26 am # here i come
I have been reading you and seems this is a different take on your prices post from the past
HIC
on 08 Sep 2007 at 4:28 am # bill Mulling
Not very encouraging! I have to go to my VC and explain that I need more money
Bill
on 08 Sep 2007 at 4:31 am # Charlie Smith
Bill,
Life is tough, but just read a nice post about the 35 hot products for my Mac and every time they said it cost $$$, I re-read to see if this is something worth it to even read.
Charlie.
on 08 Sep 2007 at 5:00 am # Mike Chirak
Mario, How do you explain the cost cut from iPhone?
Mike
on 08 Sep 2007 at 5:05 am # mario ruiz
Mike,
It was overpriced in the first place. According to Steve Jobs: “we have the chance to ‘go for it’ this holiday season.”
Right now, Verizon is offering a sleek white LG Chocolate music phone for $49.95. Yes, it doesn’t have the memory, features or coolness of an iPhone, but to lots of consumers, that sort of phone is a better deal on balance than a $600 iPhone.
Mario