Why Software Companies Should Slash Their Prices
Posted on 4th Feb 2010 at 11:09 by Antony Leather with 26 comments
How do you compare one piece of software to another? Features? Price? The space it takes up on your hard drive? How would you predict how well a product might sell and factor that into the pricing?
For most of us it comes down to cold hard cash and whether we can find something that’s as good or better, for less, or even for free. However, only a handful of companies have grasped the fact that if you lower the price of software enough, sales will skyrocket so high, they’ll make many times more profit than if they priced it twice as much, however popular the software may be.
Take for instance Windows 7. Windows operating systems have traditionally cost upwards of five times the amount you might pay for a new PC game. Even if you bought an OEM copy, chances are you paid more than £100 for it in the few years after its release. Part of the problem behind Windows XP refusing to die was that it was pretty easy to pick up an OEM copy for less than £60. If you’re a casual gamer, web surfer and social networking junkie, then why fork out any more for Vista or Windows 7 when £60 will sort you for the next five years?
Whether or not Microsoft priced Windows 7 accordingly or if they finally woke up and realised they could sell a shed load more copies by dropping to the price so that your average PC enthusiast could upgrade their entire operating system for the price of a couple of games, is a tricky one to call. I like to think it’s the latter but whatever the reason, the fact you could pre-order Windows 7 Home Premium for £49 just before Christmas meant copies sold by the bucketful.
In fact in less than a month, it accounted for four percent of the total OS market share. It took Vista seven months to do the same and it now accounts for ten percent which is already half as popular as Vista which was released all the way back in November 2006.
A lot of this is down to Window 7 being a better operating system than Vista and a worthy upgrade from trusty old XP. But I think a lot more came from the price which, at £49 for a combined 32bit and 64bit package and something you’ll probably use several hours a day for years, is a pretty good deal.
Another example is Steam. In a recent weekend half price sale of Left 4 Dead, sales increased by an astounding 3000 percent. Yep that’s three zeros. What’s more, this actually beat the launch sale figures which is just insane. Clearly the perceived value idea was spot on here, no doubt thanks to it already being a popular product but by halving the price, Valve successfully increased sales by 30 times.
When you think about it, say DiRT 2, Mass Effect 2 and Alien Versus Predator or any other three games you liked cost £29.99 each and you were standing in your local game shop or browsing Steam now. How many would you buy? I’d probably get one as splashing out nearly £100 on games is a bit much all in one go.
Now what if they were £9.99 each? I'll take all three please and you can thrown in Call of Duty: Modern Warfare 2 and Borderlands for the same price while you're at it. You’d quite easily end up buying games you wouldn’t normally, just because you can. It's not quite ever-increasing returns as there will be a point where the price is too low and the curve starts to level.
What I would say to the software companies is: This just goes to show why piracy is so popular. Plenty of people probably want to buy your products. All that hacking and cracking and bypassing updates and security can be a pain in the rear end, or so I’m told. Do a bit of research. Drop your prices and you could sell more copies than you ever dreamed.