From: davet@cbnewsj.cb.att.com (Dave Tutelman)
Subject: Re: Why do people want PD software?
Organization: AT&T Bell Labs - Lincroft, NJ
Date: Thu, 27 Aug 1992 12:35:17 GMT

I tried this reply by Email, but it bounced.  Since then, William Unruh has
posted a somewhat similar followup, but there's probably enough here to
warrant a post.......

In article <1992Aug24.094258.11233@uniwa.uwa.edu.au> craig@ec.uwa.oz.au (Craig Richmond - division) writes:
>leonard@qiclab.scn.rain.com (Leonard Erickson) writes:
>
>Software should come as three distinct components.
>
>First is the software.  The software should be a relatively small component
>of the cost.  You should get a copy of the disks in a brown paper bag or
>shrinkwrap if you are an environmental menace.  This should cost $20-50
>depending on how many disks are required etc.  My reasoning is this.  If
>for example I want to use a program like Pagemaker (which fortuantely I do
>not) I am faced with the choice of going and paying $1000 for it, or paying
>nothing and just pirating it....
>
>Second is the manuals.  The software companies should go all out and market
>their manuals as individual items.  Then the people who pirate the product
>may still bring themselves to buy the manual so they can use the program
>which means that the company still gets some money from the person.  Also
>means that places like McGraw Hill who produce thousands of those manuals
>for every program under the sunn won't win so much on the Pirate software
>market :-)
>
>Third is the User Support and upgrade information.  If you pay the final
>installment of the cost, you get access to the user support, notification
>of upgrades and bug fixes, discounts on other products etc....

OK, let's start out with a couple of assumptions:
 1. The software company isn't overcharging in total, It's recovering what
    it spends on development, marketing/sales, and support, plus a
    reasonable profit.  (I don't
    speak here about the actual materials cost of manuals and disks, as
    they're a very small portion of the cost of an over-$100 package.)
    If you're not willing to agree to this assumption, you've made the
    wrong argument above, as you haven't attacked them as gougers, just
    attacked the bundling of costs.
 2. The free market WILL do its work.  You don't have to agree with this
    assumption; it'll happen whether you do or not.

Since you list your address as the economics department of a university
in a capitalist nation, you shouldn't have trouble with these assumptions.
If you believe the above, then the unbundling you describe doesn't hack it.
 - McGraw-Hill WILL sell their aftermarket manuals for $10-$30, so the
   software vendor can't charge any more for the manuals.
 - Paying several hundred dollars for support for a mass-market program
   won't happen.  Either there isn't a need for hundreds of dollars of
   support per serious customer, or the program/manuals' quality is piss-poor.
   So let's say the support contract is $100 max.

Thus we have a $30 manual, a $100 support contract, and (your price) $50
for the program itself.  That's $180 revenue for a program that the software
company needs $1000 to recover its costs.  Worse yet:
 - The costs just went up. (Producing, stocking, and selling three products
   IS more expensive than one, even if the total contains the same utility
   to the customer.)
 - The revenues just went down; they aren't $180 any more.  If every customer
   bought the whole package, there wouldn't be any need to unbundle.
   That's the essence of your argument.

Basically, if you unbundle the product, your price for each piece should
roughly reflect its cost.  If you skew it seriously differently, someone
is going to eat your lunch on the piece you overpriced (which is really
subsidizing the rest of the package).  If the major cost of bringing the
product to market is development, testing, and advertising, you CAN'T
just charge a pittance for the disks.  Other companies will undercut you
on the other pieces of the package, and you'll lose money hand over fist.

>Along with this scheme, site liscencing can be done away with as an
>original copy of the disks can be purchased for a moderate cost anyway and
>manuals can also be purchased on an as needed basis.  And a deal copuld be
>struck for the user support side of things.  Also, the software companies
>are far more likely to end up better off.  I know that the amount I spend
>on software would definitely go up if this scheme was in effect.

You MAY be saying that more people would buy the pieces -- that the overall
market is MUCH bigger due to the unbundling.  But you've submitted minimal
evidence, if that's your claim.  The market may really be elastic enough
to justify reducing the package price from $1000 to $180,
but I seriously doubt it.  (And it must vary markedly with the package.)

In order for the numbers to work out, you must spend several times what
you do now on software.  So must everybody else.

>Mind you
>I'm also idealogically opposed to microsoft so I don't care if they take it
>up :-)

Aha, a hidden agenda!
At the gut level, you're not really willing to accept Assumption #1.
Well, frankly, I'm not crazy about Microsoft either, but Microsoft isn't
the whole industry.  And my objections to Microsoft have little to do
with its bundling or pricing policies.

>I expect many other people would react similarly to a scheme where
>you could buy installation disks for slightly more than the disks would
>have cost blank.  At least the software manufacturer gets some money out of
>us.

That's the theory of shareware.  What percentage of shareware authors have an
economically viable business?

>One of my friends actually thinks it would be best if software went the
>same way of books with Software Publishers providing support to individuals
>who were the authors and handling all the marketing, production.  This is
>perfectly integratble with my idea so I think its a great idea :-)

Actually, this has nothing to do with your idea, and it's already one norm
in the software market.  There are two types of software companies:
 1. Those that DO develop their own software. (Example: Microsoft)
 2. Software publishers, a la your friend's idea.  (Example: Borland. Did
    you know that?  The analogy between McGraw-Hill and Borland is truly
    striking.)

Most of the type #1 companies are the result of the developer of some program
being sufficiently entrepreneurial to sell it him/herself.  (Bill Gates
started Microsoft to sell the Basic interpreter he wrote for microcomputers.)

Most new programs are developed by techies, not entrepreneurs.  They would
rather (or are more successful) selling it through an established software
house.  And frankly, the odds (and the process) of being accepted are
rather like a first novel.  I watched a friend of mine go through this.
Yeah, it really IS the publishing business.

>Craig Richmond.  Computer Officer -  Dept of Economics (morning) 380 3860
>  University of Western Australia    Dept of Education (afternoon)

+---------------------------------------------------------------+
|    Dave Tutelman                                              |
|    Physical - AT&T Bell Labs  -  Lincroft, NJ   07738         |
|    Logical -  dmt@pegasus.att.com -or- dtutelman@attmail.com  |
|    Audible -  (908) 576 2194  (Office)                        |
|               (908) 922 9576  (Home)                          |
+---------------------------------------------------------------+
These opinions are mine, not my employers'.
Newsgroups: comp.sys.ibm.pc.misc,comp.os.msdos.misc