by Mike Masnick

What's The Best Software Pricing Model?

from the it-helps-to-understand-economics dept

The latest Bill Gurley column is all about how to price software. He makes some interesting observations, that would be a lot more valuable if he didn't mess them all up by misunderstanding economics and making a huge (wrong) assumption at the beginning of the article. He points out (correctly) that the marginal cost of software is zero, and economics says it should then be priced at zero - but says the "model breaks down" if the price is zero. Actually, the model works perfectly well. What the model says is not that you should price it at zero, but that the market will eventually price it at zero if there's true competition. So, the model works just fine - assuming you allow for competition. In light of that, I think the rest of his discussion about the differences between subscription models vs. license models is a lot more interesting.

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