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beat open source competitors by raising your price

March 19, 2006

Sparked by comments in this JOS discussion, I thought I'd relay my thoughts on how you compete with open source competition.

First let me summarize the normal arguments:

  1. Companies want support (not just forums, but actual support with phone numbers)
  2. Companies don't want to rely on part time developers who have no obligation to work on the product
  3. In theory OS gives the customer power to change the code. In practice they lack the skill and/or desire to do so.

OK that's great and I agree with all of it. But that's not how you beat open source competitors. That's not how you stand and fight in a market saturated by open source competition. You need a strategy which leverages the above. Be prepared, I'm about to blow your mind.....

Money is not that important to many people

Yes it's true!!! I'm not making this up. What is important to them are problems. Problems which cost them far more time/money than a software license.

Take that statement and combine it with the knowledge of the downsides of open source applications. The only logical thing for you to do is raise the price of your software. I see people all the time talk about lowering their prices because of open source competition. That's exactly the wrong thing to do.

The thing those people are missing is the psychology of purchasing software. If you lower the price you're narrowing the gap between your software and the open source software. Not just the gap in price but also in perception. You're making it easier for customers to jump to open source. Why?

Because if you lower your price to $20, it's now a very small leap to $0. Customers start to think things like: "This probably isn't much better than the open source product because it's so cheap", "This software can't be offering anything much better than the open source alternative", "How are these guys going to stay in business only charging $20?"

You need to raise your price and get customers thinking like this: "$200 a license? This must be a lot better than the open source product", "come to think of it that open source website did seem a bit thrown together", "I bet these guys have Aeron chairs and plush offices in Silicon Valley. Nice to know they'll be around long after I've left this stinking job"

You get the idea. Instead of devaluing your brand by lowering the price you need to emphasis your brand as premium. Price helps you do this. It's not the only thing, but it goes a long way. Most programmers don't think this is true but you're wrong. A high price implies quality, that's just the way it is.

A high price also gives your business customers some cover. Again, you think business managers want to go into their bosses and say they got something for free. Not true! Mangers want to cover their asses. You don't cover your ass by using a free tool with no (formal) support. You cover it by buying expensive tools that have boatloads of support.

I'm not saying you have to be the most expensive product around, but just resist the temptation to lower your price. You're competing on many levels with open source applications and a low price in many ways is the least important factor.

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