Today I stumbled upon this blog post, trying to justify why software prices are so overinflated these days. The author does make some valid points, I disagree with the general notion expressed in the post. While making software is not easy or straightforward, it does not justify some of the prices listed out there.
The prices of proprietary software are not really tied to the actual cost of development and testing but to:
- Brand Name – just like with any other product, recognized brand names charge more.
- Amount of Competition – software market is very unique when compared to other markets, because it allows near-monopolies to thrive. This is the only market where a very expensive product can be more popular than the free alternatives produced by competition because of compatibility concerns, and sheet market saturation
- Customer Expectations – pricing is usually based on the perceived amount of money the customer is willing to pay for that type of a product.
The last point is especially striking. How come Microsoft sells their Office Suite for $400 while most game developers price their products at around $60. Does that mean that an original dynamic 3D game with advanced AI, complex physics and many hours of voice acting is actually less expensive to build from scratch than the newest iteration of MS office?
I’d say the game is more complex to make – or at least as complex as the office suite in terms of programming involved. But, the number of people involved in making a modern game is greater than for a product such as office. Microsoft does not need concept artists, graphical designers, voice actors, voice acting directors, voice acting crew and studio, script and dialog writers and etc. Modern game development usually have this whole extra layer that adds to the cost of development in a real, tangible way.
But, no one is going to buy a game for $400. Of course if you are playing a MMO game you may eventually end up paying more than that in subscription fees – but note that part of the subscription money pays for server upkeep and bandwidth. Games are designed as commodity products – you play them for few days, or few months until you beat them, unlock all the secret features, and get so good at multiplayer that you can pwn n00bz in your sleep. Then you get sick of it, and move on to the next game.
Office on the other hand is a product you are supposed to use for a long time. You buy it once, and then you just keep on using it every day, until the new version comes out and you get to pay $400 for it again. This is how they justify the price tag – it’s not how much it costs to develop the product. They base the price on how you plan to use it.
This is why in some products we have per-seat licensing, and other crazy schemes like that. The truth that all software makers know all to well, and try to hide from the customers is that software does not obey market laws of supply and demand. Supply does not deplete as the demand grows. Making more copies of software does not get more expensive, proportionally to the demand curve. Once you have a software product, your supply is almost limitless, bounded only by costs of distribution (ie. bandwidth, cost of making burning, and boxing CD’s and etc).
To offset this, software makers need to worry about maintenance. Most other industries simply release a product, offer you a short term warranty, and then forget about it. But when you release a software product you are expected to maintain it, fix bugs, plug security holes, and add features for the entire lifetime of the product. But, no one ever said you need to provide this service for free. Microsoft does it for the most part, and perhaps this is part of the justification for the inflated prices. Other software makers can sell you support plans, or simply provide software “as is” without making any promises for future support. So while long term maintenance is costly, no one forces you to provide it to your customers.
As a matter of fact, software can be made for free. You don’t need raw resources, manufacturing plants, manual labor, facilities and etc. All you need to start selling software is a computer, a compiler, an internet connection and lots of time. You will say that time is not free – and of course you are right. But many developers will gladly work for free, and contribute to a project that interests them – just because this work is so god damned rewarding. In what other industry can you find people who are not only willing, but also excited to work for free on their weekends to fix bugs and add features to your project?
So the cost of development may not be zero, but a function of time “donated” by individual developers. Still, in the end the software gets made with no upfront capital, and no tangible expenses that can be traced back to the project. So how much does it cost to develop software? The correct answer is: it depends.
It depends on what type of software you are making, how much are users willing to pay for it, how much money you are willing to put into the project and how much profit you want to make on each copy.
You can develop software collaborating with other people online for exactly $0, and distribute it for free. Or, you can pipe thousands into R&D, hire developers, and build a company (or an empire) around your project and sell it anywhere from $20 to $1000 (or more) a per copy. Its completely relative.
So why do Windows and Office so much? Because, my dear friend, you are willing to pay that price. Because Microsoft is a brand name, with a de-facto monopoly in the OS and Office markets. And of course, most importantly because if they would charge more their sales would drop and piracy would rise, as their product would become to expensive for some people to afford.
And that is the truth.
[tags]software, software development, software development costs, microsoft, software prices, software supply and demand, software economics, software industry[/tags]