Does anybody buy anything these days at list price? From supermarket competition to cut-rate pharmacies, from notorious car dealers to airline ticket brokers— the concept of paying less than the so-called "suggested retail price" has become solidified as an American habit. One has to question the buying smarts of individuals who never do comparison shopping. Are they too much in a hurry to be first to own something? Do they believe that lower pricing equates with defects?
No industry has become more aggressive in price persuasion than the firms who make, and those vendors who sell, computer products. That category includes software as well as the hardware. Sure, there are certain brands that hold tight rein on pricing policies (i.e., Apple, Quark, Adobe), made possible in most cases by their niche market domination. By and large, though, the popular brands you encounter in stores and catalogs all seem to be dedicated to winning over users by irresistible purchasing schemes.
Within the past year or so the intensity has picked up, and any prospective buyer, just by being patient and determined, can obtain top-rated software titles at sizable price reductions regularly and even free— all legally. We're talking Windows for the most part; with some 80% share of the operating platforms, this is where you find buyer volume.
Why the urge to emaciate profits? How long can these policies last? As with nearly all seemingly misplaced selling schemes, there is method to the madness. The objective involves market share and even survival, issues that are already familiar to hardware makers and Internet operators.
Procedures for Paying Less Have Changed
In the recent past (during the '90s), it was a typical arrangement for software producers to offer discounted pricing on upgrades to those who could furnish proof of prior product ownership. It was an era when new versions existed only in disk form— not much downloading back then. For users of competitive products a lesser discount was a standard enticement to switch. In both scenarios, very often the title page of the older user manual had to be supplied as proof in order to register the product or receive the rebate.
Today a popular alternative is to make the upgrade immediately available at reduced prices to buyers and then call for inserting the serial number of the prior software during installation, which allows the operation to proceed only if the identification is valid. What constitutes "competitive" products is solely the choice of the vendor. Often it's restricted to the one or two most popular alternative choices but, depending on the producer's goal in wanting to develop a larger user base, a similar program from almost any source may be accepted (photo imaging software comes to mind). In that case, the inputting of the competitive product's serial number during installation may be waived, being required only for mail-in or Internet registration to assure eligibility for receiving technical service on the new program.
It's interesting to compare the structuring of discount and rebate policies. Software titles can be found with the same "official" price reduction everywhere from time to time. These usually occur when a new version is soon to be released (generating increased sales so as to minimize product inventory) or when a competitor has announced or already issued its own new, improved model— thereby stealing potential buyers of that brand.
The options of applying the reduction at the point of purchase vs. requiring a mail-in rebate form have pro and con arguments. In the first of these choices the buyer has instant gratification but the retailer rings up a smaller sale and must wait for the sales report to be processed by the software maker before getting back some part or all of the normal mark-up profit.
In the second scenario the store makes its usual or agreed-upon (for this special offer) mark-up without additional paper work or time delay, the software maker gets full information about the buyer— automatic registration, too— but the buyer now has to wait several weeks, and more likely several months, to receive the rebate. The money-back-by-mail is an appealing choice for the software maker because of redemption percentages. For ten or fifteen dollar rebates there will be a sizable number of customers who won't bother with the details of providing certificates, UPC code symbols, and store receipts. Playing the odds that way enables a manufacturer to promote the reduced price, encouraging more purchases, and yet not suffering reduced profit on all of the units sold. As you would expect, the larger the rebate the higher the rate of rebate requests.
Double the Savings In One Transaction
And then there's that happy situation involving discounts and rebates! For those of you who live in or near a major metropolitan area replete with multiple shopping sites, it's not uncommon for competitive retailers to factor in an immediate store discount on top of a manufacturer's own price reduction. For the store, its reduction makes the product a "loss leader," assuring a higher volume of potential customer traffic than the maker's discount alone would generate. As yet one more incentive, with or without the store discount, the software producer may offer a separate, additional reduction via rebate to proven users of prior versions. So, then, in the most perfect of purchasing opportunities, the combined in-store reductions and rebates will bring down the final cost to half or less of the so-called list price. It's becoming fairly common these days to realize a 100% savings, as ridiculous but heart-warming a situation as one could concoct.
The general pattern seems to call for $10 discounts or rebates applying to products costing $30-$40, escalating by $5 or $10 as you move upward in base pricing in $10 or $15 increments. That is, until you get to the stratospheric price levels of top-level publishing products (Adobe, Quark, Macromedia) or industrial-strength designing and accounting software. For example, Adobe's Illustrator 9.0 is priced at around $450 off the shelf, but just $160 as an upgrade sale.
Proof is readily at hand in the store mailers or newspaper inserts that appear weekly. To discard or pass up checking these marketplace sentinels is unthinkable to all but entry level users. Just a quick skimming of contents for three recent offerings (BestBuy, CompUSA, and MicroCenter) reveals these appetizers: Buy Quicken 2001 Basic at $30 + Quicken's TurboTax Basic at $20 and receive a $30 rebate; buy Adaptec's Easy CD Creator for $100 and receive an instant $20 savings + $20 upgrade mail-in rebate (if qualified); buy PowerQuest Partition Magic ($70 list) for $55 and receive a $15 rebate by mail. Of course, the often forgotten caveat is that there's no bargain if you don't need the product. And also another must-not-forget dictum: Time waits for no one. Some of these super deals last but one week.
So, then, why this rush to weaken the bottom-line profits? The answer may be around the corner. Perhaps you have already encountered it but may not have recognized it for what is.
Dependency Disguised as Convenience
As mentioned earlier, discounts and giveaways have as their primary objective the enlarging of a user base. That brings about lower per-unit production and distribution costs for the product. More than this economic advantage is an increase in the percentage of customers using that brand vs. another, thereby becoming a more dominant player— maybe a leader— and eventually causing the demise of one or more competitive titles for that particular item. It's pretty much the same procedure for a particular kind of soft drink or a computer operating system or software.
So, let us consider where this scenario is going. How does one get this vast pool of buyers to be long-term followers? Imagine that Company X now is one of a very few preferred providers of software designed to make computer printing more versatile. It started some years ago, gained a presence on retail shelves, and then created a Web site to allow for direct user purchase (full price) of the CD-ROM as an alternative. But, more recently, by observing the ease of downloading, the program can be sold less expensively— especially since the paperback Owner's Manual is not sent, although available for extra cost or "free" as a 90-page download. Further, the Internet concept allows for fast posting of "bug" patches or revisions. The "hard" product is too costly and time-consuming to modify and distribute, so the decision is made to continue the original software version but promote fixes or "service packs" via the Web.
Ultimately, the marketing consultants come up with a grand plan: let's identify the revisions in a sequence that begins with the version number, making the downloads free to registered users. Then, when a reasonable amount of time has passed ("reasonable" being dependent on sales), the fully updated program is released. It has a new version number, so it's a new purchase— cheaper to prior owners, of course. And the sequence begins anew.
Naturally, tech service will be offered only to those who have the latest version although a prior edition ("legacy" is the favorite term) owner may still have access to user forums. [If this has a contemporary ring to it, you must have read that Microsoft recently put Win95 out to the very same kind of pasture.]
Next move: why give away the revisions or patches? Why not offer a contract, so to speak, that entitles the user to receive downloaded changes for, say, a year. Included would be automatic notification (e-mail or screen "pop-ups" when connected to the Internet), perhaps instantaneous downloading and integration into the program itself. [For the record, this already exists with one or more of the major anti-virus providers. McAfee has a Web-based Clinic available to registered users of its software on a yearly fee basis.] Next step is to make the contract terms self-renewing unless the user advises via a detailed form not to do so. Not original, but definitely advantageous.
Which all leads up to the grand finale. Don't sell the original program— lease it. Could even tie it to a revision or upgrade policy. That could work with either disk or download formats and the user then is locked in for a year or more. Make it simple, make it convenient, and (above all) be sure to make it firm. Pay in full in advance or in those familiar easy payments because, regardless of choice, the money is committed and the software producer can thumb his nose at competitors.
Just in case you think this twist to marketing may be a bit far-fetched, read on. The future has already arrived in the implementation of ASP (Application Service Providers), a concept that's been created for big businesses but very likely to trickle down, even if diluted, to the independent user.
Meet Your New Software, But It's Not Truly Yours
There are plenty of good reasons why business is listening to ASP pitches. While the all-inclusive package of services— providing equipment, establishing and maintaining networks, even installing and integrating software— adds substantially to a company's overhead, there can be compensating value in releasing resources (time and personnel) for true business operations. The one facet of this external tech assistance that applies to our discussion is that businesses are freed of the cost of buying software and licensing its usage for a sizable user base. Based on contract options, management can have software revised or upgraded for a known annual cost, enjoying the benefits without the concerns of purchase, registration, and random replacement.
The makers of such popular applications as "office suites," standalone accounting programs, Web development tools, and even basic operating systems have seen in these situations the nucleus of a marketing model tailored to smaller-size audiences, including individuals. Microsoft has put up trial balloons to test the atmosphere of acceptability. Office XP, the replacement for the not-so-great-selling Office 2000, came in after WinXP was released as the successor to Win2000. That made for an ideal time to introduce a leasing policy that includes updates, fixing a time period (a year, likely) via built-in software commands, and equally important, placing limits on copying. Whether this concept would be the model for other major players (Symantec, Computer Associates, Adobe, Intuit) is even more unknown. But, based on past activity, what Gates & Co. initiate more often than not is imitated to a great extent by the rest of the pack, if only because Windows exerts so much policy influence.
Pricing is a touchy issue to analyze, especially with so little history available for the proposal. It stands to reason that the total annual lease cost would be less than a current outright purchase on the basis that the version acquired would be valid for, say, two years— augmented by the "free" patches and continued tech assistance. Microsoft no doubt will evaluate a wealth of statistics and customer profiles before the initial pricing is announced, and even that may be adjusted before or shortly after the software materializes.
As Goes Microsoft, So Goes the Industry?
Controlling the number of users (i.e., copies) no doubt is a key factor in switching over to leasing. In view of the rumored size of the "unknowns" base, the question of high pricing for any current product becomes fundamental to creating what may be a superficially lesser expense via leasing. All of which indicates that this approach to marketing software may be most suitable only for the more costly products. Yet, other producers with more moderately-priced software may follow suit simply to join in the mainstream perception of what may be considered "standard" policy.
Disturbing to a significant sector of the public is the capability of renewable leasing plans to create impressive databases of user information. Even if intended solely for improvement of product and service, this profiling represents a valuable and tempting source of personal statistics that could yield far greater benefits to the custodian than current "cookie" feedback from Web sites. That is a subject with moral philosophies or legal ramifications beyond the province of this article. But it's something that surely will engender debate and discussion among trade groups and users, both before as well as after realization of whatever software leasing plan has been devised.
Inasmuch as the business community seemingly has given an initial blessing to the ASP concept that includes non-purchase of software, the adoption of this aspect to the consumer market is not unexpected. But all of this is not so different from some present-day schemes mentioned earlier. Quite possibly, in small steps rather than giant strides, some forms of leasing have already found the way to open the door to the small office/home office user marketplace. We just haven't paid that much attention to them or possibly regarded them as being relatively benign.
For most of us, perhaps, the key factor in blessing or cursing software leasing has more to do with the loss of openly visible pricing competition in the retail environment. If actual purchase of the products most of us are using becomes a thing of the past, will we have ready access to sources that offer discounted leasing plans? Or will the producers, noting the growing use of Internet transactions, exercise sufficient clout to dominate both the subscribing and distribution functions? And maybe we'll all wake up some morning and say we just don't care—because by then some other kind of option may have begun to materialize. Or, we can keep on whistling Dixie.
