Hardware’s Impact on Software Pricing

There has been a lot of discussion lately on app prices and the ability to price sustainably in the App Store. Michael Jurewitz has a nice 5-part series on the basics starting here, Marco Arment discussed it (and I rebutted), and Ben Thompson wrote about subscriptions (where I also added my two cents).

I have been contemplating another factor, though, in average software prices: the price of hardware. When systems cost thousands of dollars, spending a few hundred per title was no big deal. In those days, I believe, Lotus 1-2-3 was somewhere around $400. But as the systems dropped in price so did software prices. The Office suite went from $200 per app to $200 for four apps, and then the basics (Word, Excel, Powerpoint) were available for  $100 (Home and Student edition).

The same is true for mobile software. When devices were $500-1000 spending $30-100 for a software product was no big deal. But now smartphones are free to $200 (user perspective, with contract). The expected price of software also dropped. Now high end prices are $4.99. Furthermore, I believe this effect is only pertinent for traditional software purchases, those one-off buys that made up the software world all those years. Other models may be immune.

There have always been very expensive software packages as well, mostly because there was either limited competition or aimed at a niche that would pay or both.

Freemium Lies

Jason Fried, co-founder of 37signals, on a fantastic new podcast called The New Disruptors:

“When we first started we were one of the first freemium companies. When we first started we had a free trial. You could use Basecamp for free on one project. If you wanted more than one project, you had to pay. But when we launched the brand new Basecamp which we re-did from scratch, we decided we were no longer going to give away anything for free, other than a trial.”

Freemium, although the term is maybe a decade old, is not a new idea. It means, simply, that a certain amount is for free and more stuff is for pay. In fact the term is exactly that, the melding of free and premium.

The problem with Jason Fried’s statement above is that Basecamp is still freemium. His “free” portion is just time now, rather than projects. And if you want more time then pay for it.

Freemium is a decades old approach, in software or outside of it. Free samples at the grocery store. Free car wash with a fill-up. Get one free if you buy one. Even free trials, a staple of software for decades, is free for a limited time. These are all models that have a sense of freemium. Get something for free, get something for pay.

More from Jason:

“A lot of these companies that give away everything for free and later on they are going to pull the revenue lever and figure out how to make money off people. It’s very difficult to do that when people are used to getting stuff for free, first of all. It also sends a message that when your stuff is free, it’s not really worth that much. You don’t give things that are valuable away for free. No one does. Last, a lot of people use these free products and then the company goes away because it’s not sustainable. What a bummer.”

We all give away our time and I can’t think of a more valuable thing to give away. A product can be valuable but pales in comparison to this. Free is marketing, that’s all, and there are different ways of leveraging free marketing. Some companies have done very well with this “free to use forever with restrictions” model. Google launched Docs this way. Flickr hosts billions of photos this way. Evernote has over $100 million in revenue because of it. Now, 37signals has backed off freemium and so has Google Docs. That’s fine. That may be a smart business decision and don’t deny Jason the opportunity to do that with 37signals. But I find it disconcerting that Jason wants to forget that this model was critical to his success. Freemium is part of why 37signals is where it is today.

Oh, Jason, and if you are only giving a product away for free? That’s not called “freemium.” That’s called “free.” And I wouldn’t trust that to be around, either.

Backlog

I’ve accumulated a number of really good posts that I never seem to get around to posting. I thought, instead of sharing them one at a time, that I will share them in a group here instead:

I have been influenced greatly by each of these articles. In particular the last two, Subcompact Publishing and Augmented Paper, are amazing treaties on the future and design, respectively. Hope you take the time to read them all.

Startup Identity and the Sadness of A Successful Exit

Jason Cohen is one of my favorite writers. He seems to speak from the same mouth as me, only so much more elegantly. One of his latest, Startup Identity and the Sadness of A Successful Exit, is something I struggle with personally.

My fingers trembled as I fed page 34 of 72 into the fax machine, deftly pressing the head of each page into its creaky jaws so that this shitty cheap-o machine wouldn’t snag two pages at once, slantways, obscuring the precious scribblings adorning the footer of each page where it read: “Seller’s Initials: _______”.

This is what the last six years were all for. All the labor. All the risk. The brave face for the troops. The self-inflicted unflagging optimism despite no evidence to support it. All those sleepless nights worried about making payroll. The care and feeding of becoming an expert in something. The hard lessons you have to recover from learning. The experience you get just after you need it. The inner doubt suppressed for the morale of the team. No salaries followed by low salaries. The “eat what we kill” mentality. The scrounging and scrabbling and begging and fighting the assholes for those morsels of revenue, those crumbs of validation.

It’s over. We did it. I did it. American dream? Check.

The 73rd page spat out confirming the successful transfer of the previous 72.

And then…  sadness.

I haven’t been on the selling side but I have more than once grappled with moving on, with a business that couldn’t pay its bills anymore, but a business I still believed in with all my heart. I hope some day to be reconciling the mixed emotions of selling Infinity Softworks for a hefty profit but know that when that day comes, I will let go with a heavy heart. After 16 years, I am Infinity Softworks, after all, and Infinity Softworks is me.

 

How To Start A Magazine (And Make A Profit)

I know how to write code. I have financial training, too. I can manage a team and focus on the details. I can also see the forest for the trees. But it’s the nitty gritty about what people did to start and build their businesses that really floats my boat. To that end, NPR has a great article on Marco Arment’s The Magazine:

He has 25,000 subscribers who pay $1.99 a month. Apple takes a 30 percent cut, leaving Arment about $35,000 a month.

This cost of putting out the magazine is a bit over $20,000 per month. It comes out every two weeks, and each issue costs about $10,000. Roughly $4,000 goes to writers. The rest goes mostly to copy editors, illustrators, photographers and editors.

How people build and run their businesses is fascinating. I felt, for a while at least with Marco’s Build and Analyze podcast, that I had a front row seat to his successes. I hope this turns out as well as it has started for him.