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Software Pricing for new ISV?

Hi everybody,

I've finally found my niche and will soon be starting an ISV to pursue it. The great thing is that it is a perfectly vertical market, with no competition and great need for the product. The bad thing is that I have no idea how to price the product!

Of course it's premature since the product hasn't been developed, but I need an idea of pricing so I can start a rough business plan to see if it will work.

Does anybody know of any good articles on how to price a software product?

Thanks!

Vertical_Man
Tuesday, July 27, 2004

Silly me, I did a search and found this thread:

http://discuss.fogcreek.com/newyork/default.asp?cmd=show&ixPost=1389

Anything else?

Vertical_Man
Tuesday, July 27, 2004

Vertical Man,

You need to read Eric Sink'c comments about the "no competition" thing.

Ewan's Dad
Tuesday, July 27, 2004

More details:

The software will be for a specific kind of small-business industry -- think Dental Office Management Software - http://www.starbytesystems.com/ -- except they will not be as rich as dentists. :)  (They are charging $2235USD)

My software will be delivered over the web, and I am thinking that I will need to use a subscription-based model for this thing to work.

Vertical_Man
Tuesday, July 27, 2004

Regarding the "no competition" thing, Yes, I just read it a few minutes ago actually! What specifically about it would you point out to me?

Vertical_Man
Tuesday, July 27, 2004

Oops... that's Eric Sink's not Eric Sink'c

Here's the link: http://software.ericsink.com/Choose_Your_Competition.html

Ewan's Dad
Tuesday, July 27, 2004

Ah, okay, thanks. I thought you meant the "Starting Your Own Company" article.  http://msdn.microsoft.com/library/default.asp?url=/library/en-us/dnsoftware/html/software07072004.asp

Vertical_Man
Tuesday, July 27, 2004

Two things to point out in regard to cometition:  1) If there are no competitors, there may be no market, and 2) there is always competition even if the competition is non-consumption.

I think it's great that you found a niche that you'd like to go after, but I suspect you have your "rosy glasses" on and you probably need to do a little more market/competitive research.

That said, congratualtions on finding something you can feel passionate about.  Go for it!

Ewan's Dad
Tuesday, July 27, 2004

I did find some competition on Google, but they don't seem to be very organized, and neither are they targeted specifically at the market I'm thinking of. (Think general office management software vs. Dental office management software)

I have excellent domain knowledge in the market I'm targeting, which can be put to good use.

Anyway, that was a great read. If anybody has any other recommended articles, I'd love to read them.

Vertical_Man
Tuesday, July 27, 2004

I disagree. The only valid way to do market research that is worth even 2 cents is to actuually get out there and market teh product and see what happens.

Eric Sink is wrong on the no competition thing too. There is such a thing as pioneering a new market and it happens every day.

Who knew that there was a market for organic eggs?

Dennis Atkins
Tuesday, July 27, 2004

Your pursuing a domain in which you have knowledge is a smart thing and a great strategy that will not only differentiate your software when competitors arrive but allow you to remain the leader.

Take the price of that other software you think is like yours and use that as a starting point.

Dennis Atkins
Tuesday, July 27, 2004

How about putting up some vapourware and seeing if anybody bites?

Ged Byrne
Tuesday, July 27, 2004

In fact, you could put up several differently priced pieces of vapourware , perhaps even advertise in trade press.  See what type of interest you get.

Ged Byrne
Tuesday, July 27, 2004

i was thinking about starting my own isv not too long ago. there wasn't any competition because there wasn't any market! that's just my case though...

Patrick
Tuesday, July 27, 2004

Then someone steals your idea, or the vaporosity of your advertisted product damages your rep with potential customers who do enquire after it.

You say you have good domain knowledge and so probably contacts in the area - perhaps take some out for a meal and ask how much realistically they think they/their boss would pay for what you're offering?

Matt
Tuesday, July 27, 2004


> Eric Sink is wrong on the no competition thing too.

He is not!  :-)

> There is such a thing as pioneering a new market
> and it happens every day.

Obviously.  But pioneering a new market has risks
too.  And those risks are less obvious than the risks
of competition, which we all understand somewhat
intuitively.

Eric Sink
Tuesday, July 27, 2004

Taking a few people to lunch is an excellent idea and one that I will be using to do research. Thanks!

Now my only concern is that my new product is not rocket science and could be duplicated easily by a couple of university kids. But I am hoping that the market is small enough and vertical enough that nobody really cares to enter into it.

Vertical_Man
Tuesday, July 27, 2004

OK, Eric Sink has lots of good advise. His articles are worth reading and he is a legitimate and insightful writer and CEO. Although his assertion that having no competitors is not a good thing is a good thing to think about, it should not be considered justification for giving up on a market just because it appears there are no competitors. There are indeed unique challenges inherent in creating a new market, or pioneering an unserved niche. There are also great potential payoffs if you do it right. How to do it right is something you'll have to figure out by doing it.

Dennis Atkins
Tuesday, July 27, 2004

And "Ewan's Dad's" summary of the two main issues is a good one.

I think Eric's point is that if you are saying "we have no competitors" as a good thing, you may be mistaken, it is not necessarily a good thing. Depending on the product, the market, timing, and luck - it can be a great thing. Pet rocks! Hula hoops! Desktop publishing software! All products that would seem absurd and yet made it. Some created their own industries. Others were fads. All made a good living for at least a few people.

Dennis Atkins
Tuesday, July 27, 2004

"I did find some competition on Google, but they don't seem to be very organized,"

And you are here asking for advice on how to deliver and price your product.

Formerly someone else
Tuesday, July 27, 2004

"there wasn't any competition because there wasn't any market"

Yes, and sometimes this is because a product would be hopeless, useless, or not worth the cost to develop. But the one thing we know about products that don't exists is that there is no market for them. Of course this is obvious - there is no market because the product is not available. That doesn't mena there is no market.

Here is the key to this sort of thing -- If creating a new market, don't market your own product. Don't. What you want to be selling is the whole idea of the new product category. The first guys to sell organic eggs promoted not their own farms, but rather the whole idea that organic eggs are desirable.

You will know you are successful when a half dozen competitors come out of nowhere and clone your product. This will happen and getting ahead of hte pack at thids time will be your ssecond biggest challenge after the first challenge of creating the market to begin with. A tip and a good one here is that if at all possible, get as many patents as you can. This will make it easier for you to stay ahead of the pack after you have done all the hard work of developing the market.

Dennis Atkins
Tuesday, July 27, 2004

> Taking a few people to lunch is an excellent idea and one that I will be using to do research.

No, it's not a good way to do your research. The people that go to "lunch" with you will probably be friendly with you, so that rules out their objectivity. Then they will feel obligated because of the lunch, so you will just hear platitudes. This is how businesses go broke.

For setting prices, vertical markets will pay premiums for software that addresses special needs. At least a few thousand.

Management material
Tuesday, July 27, 2004

Regarding your competition on google, you need to buy all of their products and figure out exactly what is wrong with their programs. You then need to make your product better and make sure the customers know that, though you want to do it without mentioning or even suggesting the existence of those competitors. you do this by just mentioning the things you have and they don't in your marketing materials as a list of features, with the thing that feature helps the customer do described.

Dennis Atkins
Tuesday, July 27, 2004

I don't understand the lunch comment I can't find the original post it refers to. But taking potential customers to lunch is a good idea for expensivze products. You 'get their ideas' and such, but what you are really doing is selling yourself to them as someone who can listen to them and solve their problems. This is obviously something feasible only with expensive software.

Dennis Atkins
Tuesday, July 27, 2004

Oh I found it, Matt said 'meal' not lunch. I agree with him on lunch but not on asking pricing directly. The number they give you will be worthless. But you can ask about their process for doing X manually that your software will do for them automatically. Use this information 'We have three people paid $30k working full time and filling out these forms." to figure that they spend $90k a year on this problem. If the software enables them to do it with one person, then the software is worth $60k a year to them nominally. Price it at $30k a year and they are slashing costs by 50% by using your software.

Also, talking to them about the process and such will give you a great in later when you want to sell the software to the first few customers.

Dennis Atkins
Tuesday, July 27, 2004



There are all kinds of rules and regulations concerning the transmission and storage of health care information.... this is covered under HIIPA.  Make sure that you're software complies with it or otherwise most offices can't even consider your product.

I'm currently involved with a side project that is trying to demonstrate HIIPA compliance.

It's a pain in the ass.

KC
Tuesday, July 27, 2004

Re doing market research by lunch, it sounds fine in theory, but breaks down in practice. Small business owners are not experts in software, but they're usually highly opinionated.

They will typically tell you the existing product is ludicrously overpriced, no matter how much it costs. They will tell you their support is hopeless, even if they fix things in five minutes. And then they will tell you all about their problems with printers / Windows 95 (sic) / networks / viruses.

Management material
Tuesday, July 27, 2004

Laughs, I'm not actually wanting to develop Dental office software... It's just an example I grabbed from Eric Sink's article. :)

Vertical_Man
Tuesday, July 27, 2004

And having done all that, they will then go and order two more licences at $3,000 each for the existing product.

Management material
Tuesday, July 27, 2004

You need to pick up a copy of The Product Marketing Handbook for Software and read the pricing section.

Tuesday the 27th
Tuesday, July 27, 2004

Well, y'know, it was just a suggestion. Depends a lot on the people I guess. Yeah asking about the pricing straight away would probably be a bad idea but you could get some good input without being too blatant about it.

Matt
Tuesday, July 27, 2004

There's a lot of truth to the old adage:
"1% inspiration. 99% perspiration."

Just share your idea . . . you'll get hella better advice that way. As you found on google, you're not first.

I'm sure most of us are not sitting here with our IDEs open waiting to implement every idea we see come across this board.  ;) 

Anon
Tuesday, July 27, 2004

The irony of this thread for me is that my next MSDN article is about pricing.

And it's due tomorrow.

Eric Sink
Tuesday, July 27, 2004

Fabulous, Eric! Can't wait to read it!

Vertical_Man
Tuesday, July 27, 2004

(Any chance you might email me the copy you send to MSDN at the same time? ;-) )

Vertical_Man
Tuesday, July 27, 2004

> Any chance you might email me the copy
> you send to MSDN at the same time?

Now you knew the answer to that question
when you asked it, right?  ;-)

Eric Sink
Tuesday, July 27, 2004

Sigh... It was worth a try. How long does MSDN hold the article for until publication?

Vertical_Man
Tuesday, July 27, 2004

They hold the article just long enough so thay can get a product launch (or was that lunch) wrapped around it.

So, look out for MS PriceRite real soon now.

Simon Lucy
Tuesday, July 27, 2004

Sorry Vertical_Man, I wasn't trying to taunt you.

The truth is I'm kind of crabby at the moment.  Right now this article looks like a pile of something that came out of the south end of a northbound beagle.  The quality of this piece needs to dramatically improve by sometime tomorrow.  That means I won't be going to see the Bourne Supremacy tonight after all.  :-(

I retain the copyright to my articles, subject to my agreement that I won't distribute the material until after it appears on their website.  That's why I can't send you an early draft.

My editors' turnaround time varies.  I've seen an article go up in a day, but it usually takes 3-4.

Eric Sink
Tuesday, July 27, 2004

Hey Eric,

No apologies necessary, I didn't even take it as a taunt. Actually, I really want to thank you for writing all these articles. Both you and Joel's writings have really inspired me, and that's how I was able to come to my nascent idea.

Somebody out there really does appreciate your writings and the time you take to do them.

Can't wait till your article comes out, regardless of how crappy you think it is!

Vertical_Man
Tuesday, July 27, 2004

>The great thing is that it is

> a perfectly vertical market, with no competition and great need for the product.

If there's truly no competition, I'd be worried, it may be much of a market at all.

S. Tanna
Wednesday, July 28, 2004

"Depending on the product, the market, timing, and luck - it can be a great thing. Pet rocks! Hula hoops! Desktop publishing software!"

Pet rocks were competing with pet cats and dogs (and so on). Hula hoops were competing with, well, I dunno, whatever fad was popular 5 minutes before Hula hoops became the in thing and whatever other things people hoped would be the next fad. Desktop publishing software was competing with typewriters and printing companies.

The real problem here is that some people are hung up on "competition means someone with a virtually identical product" when it actually means "all the reasons why customers will buy something else instead of your exciting new product."

Come on, people. We've had "food" suggested as an exciting new market that only appeared in the last decade or so, and now it turns out that "children's toys" were only invented less than a hundred years ago. Something about those claims just doesn't work for me.

In reality it was the existance of competition and similar products that proved that there was the possibility of a new product entering the marketplace successfully.


Wednesday, July 28, 2004

Ewan's Dad
that was a nice one, do you think that was why the google guys beat yahoo coz they realised that the fasters your services the more clients you get?

ronald
Thursday, July 29, 2004

I agree with the comment a little ways up.

"Who knew that there was a market for organic eggs?"

There has ALWAYS been a market for eggs.  And most eggs are organic (what eggactly is an INorganic egg :)  The product here is a success in MARKETING not market making.

Steamrolla
Thursday, July 29, 2004

Even things like selling cars wasn't a new market because people where riding around on horses.  A "new market" isn't something no one has done before, it's taking something that people want to do, and making it easlier or faster or cheaper.

Steamrolla
Thursday, July 29, 2004

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