WOW – this morning I was thinking about how I could add a feature to the code-it.com web site so as to allow folks to be more ‘interactive’ with our software. You know – being able to ask questions, post comments, publish tips on what and how they personally use any of our software.
What I was thinking about doing was to create a “social network” built around our software – so users could publish tips and tricks and get ideas for use, etc…
The cost of doing this – create a social network – is way beyond our means so I thought – “Hey- a blog might work almost as well if used right.”
Then I remembered that I set up a blog last year and never used it – well “I’m BACK” so will be keeping a close eye of this blog from now on;-)
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Well OK – no one wants to talk about anything so guess I’ll just have to ‘talk’ to myself!
A subject that I’ve been recently doing a LOT of research about is the subject of “Freemium” – meaning that most all content, including software, is expected by the majority of the public, to be offered FREE.
As stated at
http://www.longtail.com/the_long_tail/2008/07/the-timemoney-f.html
“We see it a lot in free-to-play online games, such as Maple Story, where you can buy things like “teleportation stones” to let you get from one place to another without a long slog or wait for a bus. Most of these paid digital assets don’t make you a better player, but they do allow you to become a better player faster.
If you’re a kid, you probably have more time than money. That’s the force behind MP3 file trading, which is kind of a hassle and but is free (albeit illegal, of course!). As Steve Jobs famously pointed out, if you download music from peer-to-peer services, fixing the messy metadata as you go, the time it takes to avoid paying means you’re working for less than minimum wage. Nevertheless, that works if you you’re time-rich and money-poor. Free is the right price for you.
But as you get older, the equation reverses and $0.99 here and there no longer seems like a big deal. You migrate into a paying customer, the premium user in the freemium equation.”
Lambasting file sharers and entrepreneurs who rightly recognize that free is the right way to build market share on the Internet might be fun and make certain people feel good. But it’s ignorance of a fundamental fact. And that fact is that free, ad supported media works best on the Internet.
Once you have built that audience, you can deliver upsells via freemium models, you can monetize it via advertising and you can branch out into other services which are easier to monetize.
At least – this is the business modal that makes the most sense to me as “FREE” does not mean it’s free to everyone – the developer of software spent 100′s of hours plus most likely 1,000′s of dollars to deve and support his/ her software offering. Is it “free” to place a google ad? Is it “free” to maintain a web site? Is bandwidth free? Is the time required to support a product “free” – of course not!
So, in conclusion – I have just recently released a “free” version of our popular audio editor – you can check it out at http://www.code-it.com – it’s call “Wave MP3 Editor FEELS FREE”.
The “Freemium” and “Low Cost” experiment…
I have been spending a lot of time researching what is know as the “Freemium” concept. For those of you that are not familiar with this – you can
check it out in detail at http://www.freemiumbusinessmodel.com/#!listen
Basically – what the concept is – Freemium is a business model that works by offering a game, product or service free of charge (such as software, web services or other) while charging a premium for advanced features, functionality, or related products and services. The word “freemium” is a portmanteau combining the two aspects of the business model: “free” and “premium”.
My initial thoughts were that this business model, in regards to software distribution, is really nothing more then the “Shareware” concept – which I’ve been doing for years.
But then I got to thinking… Software has been getting harder and harder to sell as, especially the younger folks, seem to think that “all software
should be free”. Guess the “open source” community is pounding this idea into our youth as well as the big boys (Microsoft, Apple, others…)
giving powerful software away, for free, to gain market share. Not to mention all the new free apps you can get on your cell phone.
I’ve been missing offering software for free with an option to upgrade to a “PRO” version – so I gave it a try! Here’s what I did…
1) I revised/ released all my software to be free with an option to upgrade to a PRO version for the normal registration fee I was charging for my “Shareware” versions.
The results?
1) I got approx. a 500% increase in downloads – since it was free – why not get it?
2) In a 30 day period (that’s all the time I could afford to experiment with this method) I got 2, yes just 2, registrations.
3) This amounted to an approx. 90% decrease in income.
4) While I must admit – it felt good to be sharing my work (for free) there is no way that this method would help feed my family!
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Back to my research…
I found a web blog that was discussing offering software for a very low cost and how this might be the best of both worlds.
http://www.codinghorror.com/blog/2009/08/software-pricing-are-we-doing-it-wrong.html
It stated that..
Software Pricing: Are We Doing It Wrong?
One of the side effects of using the iPhone App store so much is that it’s started to fundamentally alter my perception of software pricing. So many excellent iPhone applications are either free, or no more than a few bucks at most. That’s below the threshold of impulse purchase and squarely in no-brainer territory for anything decent that I happen to be interested in.
But applications that cost $5 or more? Outrageous! Highway robbery!
This is all very strange, as a guy who is used to spending at least $30 for software of any consequence whatsoever. I love supporting my fellow software developers with my wallet, and the iPhone App Store has never made that easier.
While there’s an odd aspect of race to the bottom that I’m not sure is entirely healthy for the iPhone app ecosystem, the idea that software should be priced low enough to pass the average user’s “why not” threshold is a powerful one.
What I think isn’t well understood here is that low prices can be a force multiplier all out of proportion to the absolute reduction in price. Valve software has been aggressively experimenting in this area; consider the example of the game Left 4 Dead:
Valve co-founder Gabe Newell announced during a DICE keynote today that last weekend’s half-price sale of Left 4 Dead resulted in a 3000% increase in sales of the game, posting overall sales (in dollar amount) that beat the title’s original launch performance.
It’s sobering to think that cutting the price in half, months later, made more money for Valve in total than launching the game at its original $49.95 price point. (And, incidentally, that’s the price I paid for it. No worries, I got my fifty bucks worth of gameplay out of this excellent game months ago.)
The experiments didn’t end there. Observe the utterly non-linear scale at work as the price of software is experimentally reduced even further on their Steam network:
The massive Steam holiday sale was also a big win for Valve and its partners. The following holiday sales data was released, showing the sales breakdown organized by price reduction:
10% sale = 35% increase in sales (real dollars, not units shipped)
25% sale = 245% increase in sales
50% sale = 320% increase in sales
75% sale = 1470% increase in sales
Note that these are total dollar sale amounts! Let’s use some fake numbers to illustrate how dramatic the difference really is. Let’s say our hypothetical game costs $40, and we sold 100 copies of it at that price.
Original price Discount Sale Price Total Sales
$40 none $40 $4,000
$40 10% $36 $5,400
$40 25% $30 $9,800
$40 50% $20 $12,800
$40 75% $10 $58,800
If this pattern Valve documented holds true, and if my experience on the iPhone App store is any indication, we’ve been doing software pricing completely wrong. At least for digitally distributed software, anyway.
In particular, I’ve always felt that Microsoft has priced their operating system upgrades far, far too high — and would have sold a ton more licenses if they had sold them at the “heck, why not?” level. For example, take a look at these upgrade options:
Mac OS X 10.6 Upgrade $29
Microsoft Windows 7 Home Premium Upgrade $119
Putting aside schoolyard OS rivalries for a moment, which one of these would you be more likely to buy? I realize this isn’t entirely a fair comparison, so if $29 seems as bonkers to you as an application for 99 cents — which I’d argue is much less crazy than it sounds — then fine. Say the Windows 7 upgrade price was a more rational $49, or $69. I’m sure the thought of that drives the Redmond consumer surplus capturing
marketing weasels apoplectic. But the Valve data — and my own gut intuition — leads me to believe that they’d actually make more money if they priced their software at the “why not?” level.
I’m not saying these pricing rules should apply to every market and every type of software in the world. But for software sold in high volumes to a large audience, I believe they might. At the very least, if you sell software, you might consider experimenting with pricing, as Valve has. You could be pleasantly surprised.
I love buying software, and I know I buy a heck of a lot more of it when it’s priced right. So why not?
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So I went to work to give this method a shot – this really made sense to me.
1) I revised/ released all my software with no “evaluation period” but priced at a mere $1.99 to buy/ download.
2) I thought “WOW! I’m going to get a massive amount of sales under these terms!
The results?
1) WRONG AGAIN! I got over 2,000 product page views (about the same as always) in a 30 day period.
2) In a 30 day period (again – that’s all the time I could afford to experiment with this method) I got approx. 60, yes just 60, registrations at the $1.99 registration fee (reduced from $24.95). 60 * $1.99 = $119.40.
3) The result (on this month sales) was I had 2 times as many users to support as normal (as I normally have approx 30 sales at $24.95) but had a decrease in gross profeit of $630.30
4) My site may not really have enough traffic to support this type of marketing tactic – but never the less – it didn’t work for me;-(
Any thoughts or comments?
mB