Software Pricing

Last week I was getting some blue screen errors. A hardware diagnostics test reported that my hard drive had a couple of bad sectors. I bought a new hard drive and set about installing all of my programs. Wow, I have a lot of applications installed.

One of the application is X1; a desktop/email search application. I’m a big fan of X1. I’m not such a fan of the process of reinstalling X1, but that’s another story. When I went to get the client app from their website, I was informed that my license covered version 6.0, while the current version is 6.6. This seemed odd to me as usually minor revision (the number to the right of the decimal) are free upgrades and major versions (the number to the left) you have to pay for. But that’s not the way X1 works. With X1, I pay $50 for the client app and one year of upgrades. Whatever upgrades are available in that year, I get. After that year is over, I have to pay another $50 for another year of upgrades.

This pricing plan isn’t so far out in left field as to be surprising to me. Many software apps charge a maintenance fee that allows you to upgrade the software.

Quickbooks, for example, can cost $10,000 plus about $1,000 per year if you want to stay current. X1 is a little different, however. I don’t have to upgrade. They don’t seem to have any hook that forces me to upgrade. But if I ever feel the need to, I can upgrade and continue to do so for a year. Another difference is that the X1 “maintenance fee” is the same cost as a brand new license. Most maintenance arrangements are considerably less that the initial outlay.

My interest is how this relates to Excel add-ins. Let’s use Power Utility Pak as an example. It’s a pretty successful add-in that’s sold for actual money. If I pay for PUP v6, I get a perpetual license – that means it lasts forever. I don’t get upgrades, but presumably I can upgrade the version for a discounted price (couldn’t verify that in a quick glance of the product site). Bug fixes and the like are free.

If I buy PUP, I’m good for as long as it works with my current version of Excel. If I bought whatever PUP was selling for Excel 97, it probably still worked just fine in 2003. If I buy the PUP for 2007, it will probably be good for another 10 year.

So what’s better: $40 add-in plus a discounted upgrade fee. Or $40 add-in plus a year of upgrades and if you want another year of upgrades it’s another $40. Oh, and I’m not asking what’s best for the buyer. I’m asking what’s best for the developer. Although the right answer is probably best for both.

I think one of the downsides of the X1 model is the unpredictable schedule of major upgrades. If I buy it now and they release 7.0 in June, I’m getting two versions for the price of one. If they release 7.0 in January 2011, I’m hosed. What then if they release 8.0 in March 2011? It seems unfair and the perception of unfair is bad for business. Should they maintain a consistent upgrade schedule? If they do, does that force them to add features when they probably shouldn’t?

In related news, I read Don’t Just Roll the Dice. It has some basic software pricing guidance in there. Nothing Earth-shattering, but a good read if you’re not familiar with the subject or you just need a refresher.

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13 thoughts on “Software Pricing

  1. It’s an old marketing trick: pretty faces and toothy smiles = sales. More people who don’t care about software pricing will read this whole post just because she’s there. :)

  2. “people who don’t care about software pricing will read this whole post just because she’s there.”

    That worked.

  3. Dick, Have you thought about running disk imaging software? If your drive is a Seagate you can download a free version of DiskWizard. Win 7 has imaging available as part of its backup program. Imaging is great for problems such as this one when it’s just a bad hard drive – you install the OS (no updates, just the basic OS) and the imaging software and then restore your most recent backup. I did it a while back when a hard disk died and it took 17 minutes to run the restore and then my computer was back to normal. Otherwise it’s a good 2 day job.

  4. Jan Karel –

    Who cares about relevant comments? Dick isn’t selling any software.

    But I have to figure out how to incorporate his tactic into my own sales pages.

  5. Despite all the theory most of the software is priced arbitrarily barring few big companies that have little incentive to over charge for a product.

    I hate any kind of recurring billing / annual costs. I pay the hosting and other providers because I can understand the nature of it. But for software that runs on my desktop, hmm, not really. A better model for pricing could be to do some research and see at what point more people are willing to buy. Unless you have access to large audience (PUP being a case in point) this is difficult to do.

    I think for excel add-ins and products, a price less than <$50 justifiable. That is provided the add-in does something relatively simple (like make an advanced chart, clean up something, process data or make a common job simpler). That is where everybody seems to have priced their add-ins. Look at Jon’s, John’s and few others products in market. Even I priced my Project management templates at that range. And so far no complaints from any one.. may be it is working.

  6. I’ve never read an entire article on here until now – and I’ve been subscribing to the RSS feed for ages! Good trick!

  7. hahahaha. Wow, me too.

    That aside, it’s an interesting article, Dick. Software pricing models are going through a lot of change at the moment, what with the SaaS movement. Interesting to see how other companies are handling the drop in license sales.

  8. For the record, PUP upgrades are free but there is a $5 processing fee. If you buy the source code, you can’t upgrade that for free (it’s another 20 bucks). It’s a decision I made when I first started selling it. I know really know if it was a good decision or a bad decision, but people seem to like it.

    There are quite a few PUP users who have owned every version, dating back to 1994!

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