

Sofware Pricing: Are We Doing It Wrong? - nudded
http://www.codinghorror.com/blog/archives/001293.html

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patio11
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.

~~~
rriepe
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.

~~~
liquidben
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.

------
tezza
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.

~~~
jcl
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.

------
pmjordan
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.

~~~
tdm911
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.

~~~
jacquesm
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.

~~~
patio11
_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.)

~~~
jacquesm
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.

~~~
shpxnvz
_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.

------
sorbits
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.

~~~
pavel_lishin
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

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

------
shin_lao
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.

------
dkersten
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.

~~~
barrkel
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.

~~~
jcl
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.

------
ErrantX
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.

------
Jem
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)

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

~~~
Jem
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.

~~~
nudded
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...](http://windowsteamblog.com/blogs/windows7/archive/2009/06/25/announcing-
the-windows-7-upgrade-option-program-amp-windows-7-pricing-bring-on-ga.aspx)

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

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

Cheers :)

