Why Developers Need to Squeeze Software for Ca$h

Everybody talks about Google, Microsoft, Apple, Angry Birds, Twitter, Facebook, and a handful of other software companies and applications, but they are not representative of the majority of software companies or authors. And the amount of money they make isn’t representative either.

Few developers ever make the gobs of money that you see in TV shows or movies. That’s fantasy land. Sure, a lot of developers live comfortably, but there’s a difference between being that and being truly rich.

I came across this article, “Is one dollar enough?“, and the obvious answer to me is “NO!” The author talks about games, and how the price point is being squeezed down to a buck. She ends the article with:

It is sad to realize that someone wouldn’t think twice about spending $2 – $5 on a quick snack, but they themselves cannot see spending over $1 on a game that will give them hours, or perhaps even days/weeks in entertainment.

She’s bang on. People will pay $5 or $6 for a coffee that otherwise should cost $2 (adjusted for inflation), or $3 on a candy bar (in Australia) which is little more than sugary poison, but they’ll balk at spending $1 for a software title or a piece of fruit!

Software licensing is a difficult business, and software revenue models are even harder. Here are a few quick questions off the top of my head that only scratch the surface of the licensing and revenue model questions:

  • Charge for machine licenses, individual users, or CPUs?
  • Use an activation count or phone home and keep track of installs?
  • Allow multiple or simultaneous use?
  • Monetize with ads? On web site? In the software? In the installer?
  • SaaS (Software as a Service) – Charge for ongoing use?
  • Charge a setup fee with ongoing maintenance?
  • Free to use, but charge for content?
  • Free but with charged premium features?
  • Basic, standard and pro licensing?
  • Nagware?
  • Shareware (try before you buy) or purchase before trying?
  • Distribution partners?
  • Exclusive distribution?
  • Which payment system(s)?
  • How about an affiliate program?
  • MLM affiliate or flat with referral fees?
  • LAMP, WAMP, WIMP or Microsoft stack? It affects a lot of other decisions…
  • C#, C++, Delphi, Objective-C, C, C# with Mono, Java? Again, it affects other decisions…
  • Start free then charge later?
  • Free upgrades? Paid minor versions?
  • Subscriptions for upgrade protection?
  • Paid support?
  • FOSS? Get paid for integration or consulting?
  • B2B or B2C?
  • Consumer or professional? Enterprise or SME?
  • Privacy issues? People will pay for information… (Dark side alert!)
  • Download protection fees?
  • Physical media?
  • Dongles?
  • Partial key verification?
  • Bits du Jour?
  • Give Away of the Day?
  • “App stores”? They’ll screw you for pricing and restrict your business model more than you could ever imagine…
  • Amazon? eBay? iTunes?
  • Retail? Tech Data? Ingram Micro? Better have deeeeeep pockets…
  • “Software site” or “sales letter”?
  • Put it out there and go for venture or angel capital?
  • Exit strategy?
  • Online, mobile or desktop? Or a mix of the 3?

GOOD GRIEF~! It goes on almost forever. And every one of those is important for your licensing or revenue model. Some will only limit your possibilities, while others are models in themselves.

And people often don’t even want to pay you $1?

There’s a very large disconnect between what people will pay for software and the amount of work that goes into a lot of it.

Slow down music with Guitar & Drum TrainerFor example, one of my software titles, Guitar & Drum Trainer, goes for $49.95. Now, considering how much some people use it, and just how valuable it is for their music, it’s easily worth 5x that much. But, when people look at software, they don’t see value in the same ways as when they look at physical objects. Tascam makes a hardware product that doesn’t do half as much, but sells for 3x the price.

So it seems to me that the $1 being enough is a symptom of the “software price disconnect” with consumers.

Gamers are an odd bunch though. They spend a lot of money from one hand, but grip tightly with the other.  They’ll spend $X per month on a software subscription for game Y, but won’t spend a dime for game Z. Fickle? Unpredictable? I think that goes for the market at large – consumer behavior isn’t always predictable, and even the best research can lead you in the wrong direction. We’re talking about stochastic processes, so this is trivially true.

As a conjecture, spending on software seems in many places to follow a sort of herd mentality, where the more people that spend, the more people that spend. The MMORPG is a perfect example. Some MMORPGs have gone the “free to play” route with items being available for purchase, e.g. Cabal Online. (I used to work for ESTsoft.) Get players in with the promise of free play, gain the critical mass needed to make the game viable, and offer items for sale to a crowd fighting with itself for supremacy. Seems like a great model to me!

However, I think that there’s a bigger issue underlying a lot of the problems in the market. The Apples and Amazons out there. They are effectively destroying the market for anyone except themselves. Their pricing policies are a requirement to be included in their stores, but they also limit pricing for the software developers. It’s not a good thing. It is eliminating competition, and forcing developers into the role of “starving artist of our day”, as one commenter in the article above puts it.

Developers are forced into ad networks like I talked about in “Win an iPad 2 – A Mobile Ad“. I’m not so sure that I like that very much. It looks like a win-lose proposition.

So with prices being driven down by the market at large, and price gouging being encouraged by the big players who profit to the tune of 30% from each sale of a developer’s hard work, the sale of software is becoming increasingly unrealistic in many categories, like games. This makes it all the more important to use or come up with non-traditional revenue models that don’t rely so heavily on sales. Every avenue needs to be explored and assessed.

Again, developers need to squeeze out revenue wherever they can. This is not a good thing. We’ve seen where that road leads to, and we’re heading full on down the path to the dark side yet once again, apparently not having learned jack shit from the past. There are good options out there, but the “bad” options always seem to pay more. Sorting out the good ones from the bad ones is hard enough, let alone resisting the siren’s call.

One good area that I think we’re going to see more and more of is in content driven software. I would love to be able to offer GDT users the opportunity to purchase music directly in GDT along with GDT files with premade loops and EQ settings. That would be fantastic! However, it’s also unrealistic for me to expect to be able to become a music distributor. Still, the opportunities for larger developers with more muscle than me is out there.

For games, this takes the form of purchasing items, or purchasing additional levels or episodes. Few programs out there though, compared to games, really take advantage of this though.

For Super Simple, this could be offering users the opportunity to get professional prints of their photos through Photo Resizer (or a new title). Of course there would be a lot of work to do to get that done, but it *is* a possibility, and would genuinely offer users a solid value proposition. That sort of bleeds the idea of content with services though. i.e. Your content, our services.

The Super Simple revenue model isn’t complete yet. It has a few elements in there, but it’s very far from being what I envision as sustainable. However, it is setup to allow for the addition of different revenue models, and when I have things ready, I’ll work them in. For the moment, Super Simple leverages 3 areas:

  • Web site ads – AdSense
  • Download page ads – AfterDownload
  • Installer ad – OpenCandy

So far the clear winner in terms of revenue is OpenCandy. They’re like the invisible 800 lb gorilla. While people scramble to position their AdSense ads properly, and optimize colors, they could easily trump that revenue with OpenCandy and leave all the work up to OpenCandy. Heck… That’s their job! i.e. Get and vet good software titles as advertisers, then help developers make money while introducing users to new software during the installation process.

There’s still a good deal more to come for Super Simple, but all in good time. I’m working on the next release at the moment.

Well, I meandered around quite a bit there trying to cover some aspects of the business of software and some pressures on software that are pushing it towards non-traditional routes for revenue. At the end of the day though, I believe the important thing to say is that you made an honest dollar.

Cheers,

Ryan

 

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