by mjhanna » Mon May 16, 2016 12:31 pm
Dave,
I have been in the computer software field for over fifty years, and have encountered this issue continuously. I have no easy solutions, but can share some observations. (Not sure if your more limited iPhone and iPod forum has a wide enough readership, but since it started here I will reply here.)
Most any academic Business Administration or Marketing program will make the point that if a company chooses to market to the mass consumer, they must match the cost of the product to the extremely low price they will be forced to charge. Lowering cost generally means providing much "less" of something: lower quality, fewer features, less functionality, less support, etc. In my opinion the free or 99 cent products focus on providing the easy "low hanging fruit" functionality at low cost to the company. But such products will not provide solutions for the "niche" of customers who want "more" than what these mass market products will provide, whether that is a pair of pants with high quality fabric which fit me, or a truly relational database product with more capabilities than a "flat file" sorting package. The cost is higher for producing and maintaining those "niche" products with "more" for a smaller market, so the price must be higher, but how much higher? Too high and it is priced out of the market, too low and the costs will not be covered.
After basic price comes your issue of a reliable revenue stream. If one "sells" rather than "rents" the product, for the company there must be an expectation that there will be a continuing stream of sales to provide that revenue. That stream gets produced either with continuing new customers, or with ultimate obsolescence which requires it to be constantly replaced. That obsolescence can either be caused by changing fashion/fad or by the product ceasing to function for some reason. (Example- Fully functional software no longer works because the automatically upgraded new operating system requires changes in application software, so the company has to sell either an upgrade or a new application.)
I agree with your recognition, Dave, that subscription provides a revenue stream but can be a temporary fix. However lately many software companies are choosing to no longer "sell" their product, but instead host it on their own server in the "cloud" and require "renting" time on their server to use it. But even the rental price needs to cover the continuing costs of maintenance and customer expectations of upgrades. As you have noted, for the customer the continuing subscription fee is annoying, is subject to price increase at any time, and invariably incurs a significant bother/cost/penalty to change from that subscription to something else. There is an actual disincentive for the company to provide an easy way for a captured customer to move from their rental system to a competitor's system.
But I do not feel it is a coincidence that low income people often are forced to rent rather than buy something of higher value or functionality. That is generally because they could not afford (or are unwilling to pay) a full purchase price. That is a fact of life even though the accumulation of the subscription fees over time will often become more than any reasonable full purchase price. In my opinion the increase in consumer income inequality I have observed just over my lifetime, not only in our country but world wide, has increased the market pressure to offer products for rent rather than to buy, because those lower income customers are an increasing share of the marketplace.
That leads to a recognition of the "law of the excluded middle". I think the "niche" market mentioned above generally is the middle. The high-end customer can afford to purchase an expensive full-featured product, to pay for development of a custom solution, and to hire maintenance of their solution. The "niche" customer recognizes the need to develop and maintain their own solution because they need "more" than the mass market products provide, but cannot afford either the high-end product or maintenance. But as recent news programs have pronounced, the number of people who qualify as middle class (who I think are generally the "niche" customers) has and continues to drastically shrink, which means your market is shrinking.
Final Thoughts
So what to do. I believe if a company wishes to produce a product that is "more" than a mass-market product, they should first not market it to the masses. They should not advertise it as a mass-market "lesser" product by selling in that marketplace. It cannot compete. Second they should not under price it. For example, I think HanDBase probably should cost at least $100 and maybe more to whatever the "niche" market will bear. The fewer the number of expected sales, the more the price needs to be. The company must cover its costs. Next, for a continued revenue stream I believe a company selling a "niche" product also needs to sell or rent some additional product or service which can produce that stream. Either they also sell a popular "lesser" mass market product which will need constant replacement, or also provide some kind of continuing service based on subscription. In general I don't think most companies survive solely on marketing one product to a middle "niche". However, it does seem a few companies do manage to survive if they produce a "niche" product which is uniquely desirable in a big enough "niche" market that those customers will bear the higher price necessary to cover all costs.
Just the musings of an old computer guy,
Michael
(Only a user and not affiliated with DDH Software, but working with computer databases for over fifty years.)