Why selling at very low prices could be profitable for software vendors
In theory, a sales man is happy when he can sell his product at the highest price the market can handle. This will offer him a good margin and the base for the next good sale, and will keep the market healthy.
Moreover the today’s software sales are in fact “services” sales. Sometimes, it not really important the software itself but the services coming along with the package.
Let me explain in a short parenthesis: (buy an antivirus product, you get a license to use the software, and what’s most important a subscripion service to update your signature database. With the today’s virus outbreak rate, your antivirus surely becomes obsolete the next day after installing it due to the new viruses that appear. Therefore, the subscription is the only way to keep your PC safe. In this case, the antivirus software is not really important because it will become obsolete the second day, but the subscription service.
Ok, now lets consider that the antivirus company has 100 clients. It has to deliver the subscription to 100 clients and offer support services. If it has 1000 clients, its simple you multiply by 10. This means more work for the antivirus team and therefore more costs)
Now I think its clear that having more clients its more costly, therefore the most obvious desire would be to have fewer clients and a higher sales price. Well, in that case why do software companies want to sell huge OEM contracts at virtually 0 revenues?
Why software companies want to sell OEM bundled software:
In a random order:
- The entry barriers for the product in the market are lower
- They reach customers that wouldn’t normally be interested by the software
- They earn by software renewal, paid upgrades, commercial support
- Software is intangible and they will never run out of stock
- The huge number of clients can be used as a marketing advantage
- People get to know the product
- The distributors become more interested as there is feedback from the market
- Gaining a market margin is more important that the revenues
- Everybody does that
- The software price is hidden in the overall bundle price
