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---- Honda Civic vs. Mercedes Benz We suspect that some of our over-priced competitors will look at our new pricing and make the comment, “you get what you pay for,” or “you can’t expect to pay the same for a luxurious Mercedes Benz as you would for a Honda Civic.” While those traditional sentiments and analogies may generally hold true for physical goods, they don’t apply to software.
With physical goods, the old adage, “you get what you pay for” is generally true, but it doesn’t necessarily apply to software. With software, each user gets a product that’s worth what the entire group of users has collectively paid for. It’s worth examining what that means. Since the cost of a new user is exceptionally low for software vendors, price is simply a function of volume. If a software product that costs $50 million to develop attracts 100 million users, it will generate fantastic profits even if it’s priced at just $1 per user (for simplicity’s sake, I’m ignoring the cost of supporting each user). That same product would lose millions of dollars at a price of $1,000 per user, if it only attracted a few thousand users at that price point. In contrast, if Mercedes Benz could sell 100 million cars tomorrow for $10,000 each, they would lose a fantastic amount of money. Despite the $1 trillion in revenues these sales would generate, the cost of producing 100 million Mercedes Benz sedans will far exceed $1 trillion in materials alone.
So, in the software industry sometimes it is possible for the Mercedes Benz of software to have a Honda price tag! It might even have a skateboard price tag! ”You get what you pay for” doesn’t apply. Another way to put this is that it’s impossible to tell which software product is the Mercedes Benz of its class based on price alone. You’re better off giving it a test drive and deciding for yourself. ----
Note: Pulled section from http://www.axosoft.com/blog/2012/03/31/10-years-in-time-reinvent-axosoft-ontime/