alien@gcc-opus.ARPA (Alien Wells) (01/21/85)
In article <265@calmasd.UUCP> cjn@calmasd.UUCP (Cheryl Nemeth) writes: >How much of the cost of a program represents the copy protection scheme? >Would it make sense to stop protecting, lower prices, and expect to sell >more copies? Generally, very little of the cost of a program represents the copy protection scheme. Disk vendors do not charge that much for the 'standard' schemes, and the engineering required to interface to them is not large. There are a number of things which lead to the high price of software. Consider: Typically, the retail channel (distributers and retailers) get the lions share of the $$ from the sales. It is not uncommon for the engineering firm to only get 35% of the suggested retail, especially if they are a firm trying to break into an existing software market or explore a new market. Of course, keep in mind that the 35% is not all gravy, either. Advertising, marketing, overhead, engineering, and production costs all have to be taken out of that. As an example, let us say that United Software Inc develops a software package for the Mac. Let's say that they negotiate a deal with SoftDist Distributers where they get 35% of retail. Let's say they expect (read hope) to sell 50,000 copies the first year it is out (before it is obsolete). Put a suggested retail of $100 on this package. Home free, you say? Gross: 50,000 * $100 * .35 = $1,750,000 Sounds pretty good this far, eh? But consider some factors here. First, for a $100 price tag, it can't be something which was whipped up in your free time. Let's say it took 4 engineers a year to produce (or 8 in 6 months, I won't quibble) for 4 man years. Taking into account reasonable salaries, fringe benefits, workmans comp and social security payments, physical plant and equipment (they at least need offices and macs), management overhead, etc, this can get up to easily $500,000. And how about marketing? 50,000 is a pretty good penetration of the mac market, you will need some pretty heavy marketing to get this penetration. Even worse, if you do not seriously advertise, dealers will not even stock you. And, of course, there are trade shows, salaries for the marketing people, etc, etc. Successful product introductions do not come cheap. You could come close to dropping 1M$ easy. To make it worse, if your company is going to be successful, the profits from this product have to also carry the costs of your other product which didn't make it. I think you see how the $$ can slip away pretty quickly. Oh, I forgot, there is also the cost of goods sold, disk duplicating, manual, box, etc. Even if your cost of goods sold is only $5 per copy, this would be $250,000 in this example. If you think this is bad, consider the poor soul who comes up with a product in his home, and is trying to find a company to market it for him. It is not uncommon for the developer to only get 10% of what the firm making the product for you gets. There are now 3 middlemen, producer, distributer, retailer. You, the developer, might get 3.5% of the suggested retail. $3.50 per will go a long way toward putting your kids through college, eh? Of course, you can try direct mailing and bypass the 'normal' retail channels, but would you buy software from some company you had never heard of through direct mail where you don't have a chance to try the product out first? Maybe you would, but most people would not. And the moment it goes direct mail, retailers drop it like a live grenade. Granted, Lotus and Microsoft have made a bundle. The reason? They have developed products which have become the *standard* in their field and which *everyone* buys. This is the *dream* which every software house has. Your product becomes a *must* buy, so you can protect your profit margins and amortize your costs over an every growing installed base. Any company that develops a product like that has it made, but any company basing its business plan on such a product is probably about to go chapter 11. You have to plan for more modest returns. So be a little more thoughtful when you complain about high software prices. Sure, I'd like $20 software, not to mention a $300 Macintosh or a $2000 BMW or a $10,000 house ... but there are business realities here that I hope you now understand. Alien DISCLAIMER: Any prices, margins, costs, policies, and contracts mentioned or implied in the above are *my* understanding of prevailing market conditions. It should be understood that they vary considerably from situation to situation and from company to company, though I believe that the overall picture presented still remains the same. It should be noted that I am *just* a lowly engineer, and I do not know the specifics of any contracts which my employer has entered into. Most of my *knowledge* comes from talks with friends at a number of companies, some independant software developers, and computer retailers.