Sofware Pricing: Are We Doing It Wrong? | Hacker News Reader

Sofware Pricing: Are We Doing It Wrong?

codinghorror.com

57 pointsnudded36 comments

Here's the dirty little secret of discount pricing: it only works as long as people think it's a discount. As soon as they leave the page they see it on, it isn't a discount anymore, it is just The Price.

Valve's "here, have 75% off" works because it is seventy-five percent OFF, not because it makes software inexpensive. If your software was inexpensive all of the time, it wouldn't help you.

The other motivation is that sales end. Once someone thinks that they could save X*3/4 dollars if they bought it now the question has become when they're going to buy it, not if.

Link? Not that it couldn't be true, but I suspect you sell a lot more at $10 than $40 even if its not a discount.

I always cock an eyebrow when I'm at the mall (usually dragged along) and I look around and see that everything has the same 25% off tag.

Of course, it should also be noted that 50 bucks was way too high of a price for L4D in the first place. Valve was selling Team Fortress 2 for 20 bucks at the time, if I recall correctly (and it was 30 at launch). So I feel they got the boon of the sale, and also the boon of the "finally, a reasonable price" effect.

Valve versus mall shopping is an interesting comparison in that it has shows some strong underlying differences. Anecdotally, most mall shops are clothing, an area where a lot of items contain the same basic function of nudity prevention and weather protection, plus some fashion value of relative merit. Valve's products are more akin to the one or two bookstores in the mall, where the basic function of the product is entertainment where the entertainment value of the product is enhanced by differences between individual products. Similarities do occur within genre, but differentiation is still necessary for success.

Anyway, it's the clothes stores that have neverending sales of their highly interchangable product. I don't think that Waldenbooks would see the same profitability curve as Valve by rotating sales throughout their stock though, as their product requires shelf space and falls within a much smaller price range.

As for L4D's initial price, Valve was smart to set it relatively high, as a multiplayer game like that leverages peer pressure to motivate sales.

Jeff seems impressed by Valve.

Across all industries a well publicised one-off sale is going to get in the crowds. See Boxing day rushes and seasonal sales in retail.

These are about publicity and shaking out any latent buying intent remaining after the high value people already paid full RRP. Don't forget stores have to clear stock before the next season's shipment arrives. Perhaps Valve has a Left8Dead sequel on the way??

But would lower prices all year round help? All of the pricing theory debates can find backing by looking at a Retail Niche which sells at a similar price point.

All I can add is that individuals do not do well at the cheap end of pricing. Overheads are a much higher proporton of small-concerns. So higher prices would probably be better for HN coders.

The Left4Dead sale also probably did well because Valve had not done many deeply discounted sales before. If they do these sales more often, people will hold off purchasing the higher-priced game in anticipation of the sale; not only would Valve lose higher-margin sales in favor of lower-margin sales, but they would also lose the sales of people who forget or change their mind about buying in the interim.

More frequent sales also hurt the novelty of the sales, causing them to be less widely reported and also less likely to trigger an impulse purchase.

Left4Dead 2 was announced at E3. http://bit.ly/15VdCY

The comparison with OS pricing seems like a fallacy. You need an operating system on every computer; most people are scared of "that Linux thing". You can only sell as many Mac OS upgrades as there are Macs out there, so the way to sell more copies is to sell more hardware. For a large part of the population, Windows is therefore more or less inevitable.

Now, if Microsoft wanted to get more people to abandon XP, then offering a direct upgrade to Windows 7 and lowering the price would probably work.

My take on this though is that if the pricing was more affordable then piracy would be less prevalent. One of the reasons that OS X has a lower level of piracy is that their OS pricing is more affordable (I'll admit there are many other factors).

I don't have stats to back this up, but I would assume that Windows has an incredibly high percentage or pirated installs (given their attempts to combat this) and pricing is a big factor in this.

I fully agree with you. The difference between 'retail' and 'bundle' discounts is a pretty good indicator software retail pricing is terribly wrong.

And then there is the fact that you could sell software online easily and you don't actually need a retail channel.

Direct-to-consumer is the only way that makes any sense at all. Why even have a physical goods channel for something that is outdated before it has left manufacturing ?

The other side of the coin is that now people are so used to being able to get that stuff for free that to reverse the trend away from wholesale copying is very difficult.

Plenty of people feel towards companies like microsoft the way they feel towards the taxman. You've already had me pay 6 times over to use this road, I refuse to pay you any longer. The profit margins of those companies don't help either.

Why even have a physical goods channel for something that is outdated before it has left manufacturing ?

Never underestimate the bandwidth of a tractor trailer of CDs.

(This is, relatedly, why there is a retail price for MMORPGs that companies would really rather give you for free. They don't give a farthing about the box money, they want to eliminate every barrier to you handing over your sweet sweet credit card details. However, if they don't charge for the box, then Best Buy won't stock them, and they'll lose accounts to their competitors who are on the shelves.)

One of the very legitimate uses of bittorrent is to solve this problem elegantly.

Sending out a gig of data even on EC2 (which is pretty expensive) costs about $0.10.

They can have my credit card details online via a secure http connection for the $1 they'll have to charge me to make up on the fees. Even beter, now they have that data instead of best buy.

After all, I highly doubt the privacy watchdogs would agree to bestbuy passing that information (especially the cc data) up the chain to the supplier.

After all, I highly doubt the privacy watchdogs would agree to bestbuy passing that information (especially the cc data) up the chain to the supplier.

Why not? Doesn't seem to be any different than buying and activating an iPhone at an Apple store. AT&T gets all of your billing information from Apple. If anything, it seems likely that Best Buy could do much tighter integration without anyone getting concerned.

Why don't they give the CDs to retailers for free, and let the retailers charge what they want for them?

The pre-order for Windows 7 Home Premium (where we normal folks could purchase it for 50 bucks) has ended. But it was a very good deal as that price is less than half of retail. http://www.microsoft.com/Windows/buy/offers/pre-order-ended....

I pre-ordered a copy from New Egg. The ultimate edition was available as well for $100.00

I doubt it, a lot of people's machines that currently run XP would not be able to run Windows 7 without upgrading the hardware. Even if they could they either don't care or think it's too complicated.

Most of the people that are left know how to pirate it anyway or have annual agreements with MS anyway so they are basically competing with that.

I should also point out that at my work, everyone can update to Vista for free, though as yet I don't think a single person has asked to.

One of the reasons the App Store prices are so low is that there is no “try before you buy”.

If I test a piece of software for a month and find it useful, I will pay a reasonable price to keep using it.

If I read a paragraph written by the author and view a screenshot, no way I am going to put down more than a few bucks to test if this software is actually useful to me.

That's why there's a lot of "Lite" versions of games and apps in the Store. It'd be great if Apple added a shareware option in the store - e.g. let the developer set a price and the number of days before the user has to pay to continue using it. Shouldn't even be very hard to implement, since they've got pretty much total control of what can run on the devices already (if we ignore the fairly small percentage of jailbreaked devices, but they can run pirated apps anyway).

I really wish there were. I paid $5 for Tetris, and I dislike it immensely, and wish I could get a refund. Oh, well. At least it's only $5. :P

Feel the same way about Ms Pac-Man. Controls are horrendous - but it looked great in the screenshots so I bought it.

Don't forget that games are also bought by teenagers that don't have a lot of money. $ 49 was a lot when I was a teen.

The right price changes from one person to another. That's why you segment the market.

That's what Valve does. People willing to pay $ 49 already bought the game. People who didn't were probably stopped by the price. If you lower the price, you lower the barrier.

In other words, you segment the market based on the willingness of someone to wait for the price to lower.

Segmentation maximizes your revenues.

As for Windows, most people don't buy Windows, it comes with the new PC they're going to buy for X-mass. People who buy upgrades are a different market segment.

Theres two points that I see here: 1) Convenience/ease of purchase 2) Low enough price to accommodate impulse shopping

The Steam deals definitely do this and I've often bought games on Steam for exactly those reasons. Theres a lot of games which I would never have thought about buying, but then I see them there for €5 and all I need to do is click and wait for the download and it looks fun... why not!? So yeah, if somethings convenient and inexpensive enough to buy on impulse, people will.

My primary experience with Steam was Bioshock, where I was forced to pay quite a bit more than the local reseller rate in order to get the game - local reseller was sold out, and only had Xbox versions left. That, and other Steam annoyances, mean I'll likely never buy another game from Steam.

But you're certainly right about the convenience factor. Considering Apple app store: the fact that I don't have to dig out my credit card, and don't have to wait for a big download or - even worse - a physical delivery, and don't have to fiddle with installation, makes all the difference with installing app store applications. Pity the business proposition for the platform is so crap, though (fascist Apple), or I'd try my hand at developing for it.

I picked up Bioshock on Steam when it was on sale at $5 -- which was fortunate because that's approximately what the game turned out to be worth to me: the thing would rarely run for 30 minutes before crashing. A long thread on the Steam message boards revealed that others had similar problems, with no known fixes.

I suspect that the game's publisher (2K) saw Steam as an easy alternate revenue source that didn't need stringent testing or support. I have purchased a number of other games on Steam, and I have not had an experience nearly as bad as Bioshock. The Valve games, in particular, are wonderful -- fast-launching, working on a range of hardware, and constantly updated to enhance the player experience. I'll think twice before buying another 2K game for the PC, however.

Anything you buy on Steam is effectively a rental, though, so it's important to pick a rental price. Their terms of service make no provision for the case where they go offline or out-of-business, and you can't sell or transfer the games to someone else. $5 was not a bad price for "renting" Bioshock, frustrations aside.

Oh I agree. I don't really like Steam and (usually) refuse to buy anything that hasn't bee greatly reduced. Normally, I'm very reluctant to spend more than €5 on Steam.

But.. when the price is right (less than €10 in this case) and something looks good, its damned convenient and I'll simply impulse buy.

I think there is an important point to note in relation to this: which is that Appstore and Steam are similar ideas. i.e. a platform with games/software within easy reach and all purchasable via the same standard mechanism. But more crucially they also have a community aspect (less so Appstore I suppose) that means word spreads very quickly.

It would be interesting to see the same thing tried with a more standard retailer like Play.com or perhaps EA (with it's smaller store).

I have no idea of what would happen - but it would be interesting.

Don't understand the comparison of the Mac upgrade vs. Windows 'upgrade'. The Mac upgrade is not an OS in its own right - it is only an upgrade. Windows 7 is an entirely different OS.

Feel like I missed something, there...

Edit: see below - I did miss something (serves me right for not clicking through Jeff's amazon affiliate links)

Could you explain why the Mac upgrade is not an OS in its own right? And why it's only an upgrade?

The Snow Leopard upgrade only works if you're already running Leopard. It's the equivalent of a Service Pack on Windows (which are, incidentally, free).

Windows 7 can be installed on any machine you like, no previous versions required.

the prices mentioned in the article are upgrade prices, the price for a full version is more. I suggest you read:

http://windowsteamblog.com/blogs/windows7/archive/2009/06/25...

so yes, Windows 7 can be installed on any machine, but that will cost you more.

That'll be what I missed then - I knew there was something! Microsoft being skanky as usual...

Cheers :)

While Snow Leopard is maybe not as big as most other updates to the Mac OS, please don't equate OSX versions with Service Packs on Windows. They're not just small updates, they're entire overhauls of large parts of the OS. For instance, Snow Leopard includes an entire re-write of the Finder.

I could also argue that Windows XP was a "minor upgrade" from Win2k, because Win2k is WindowsNT 5.0 and XP is 5.1. In a similar manner, Vista is NT6 and Windows 7 is NT6.1.

The numbers don't really have anything to do with anything.

It was the closest thing I could think of - not trying to undermine the work in/value of Snow Leopard (I don't know enough about it to make that judgement call). Apologies if that's how it sounded.

(Esp. as one could call Windows 7 the much needed service pack to Vista! ;) )

No worries. I'm a lifelong Mac guy, and with the 10.x naming scheme they've chosen for OSX, there are a lot of trolls that basically say "o lol it's just 10.3 to 10.4, it's like XP to XPSP2!!!!111". So you just pulled out my gut-check reaction, sorry about that.

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