Value-Based Pricing: A Social Experiment

Today OpenNETCF announces a new pricing model that is going to be somewhat of a social experiment.  Our latest product – the Windows CE CAB Installer SDK – is being released under a “value-based” pricing (VBP) model.  In this model we’re letting the customer determine how much they pay for a product based on how much value they feel it provides them.

The general idea is that we believe that most developers are honest, understand the value of time and have varying perceptions on the value of a software package.  For example a college student writing some quick utility for her personal use might find that the product saved a little time, but that she doesn’t have a whole lot of expendable cash.  To her, $10 may be a reasonable representation of the value that our product brought to the solution.  On the other hand a developer working on an enterprise solution might find that the product saved his team several days of internal development and testing.  He knows the cost of his developers’ time and the opportunity cost of letting them work on other product features instead of implementing what our product does.  For him $1,000 is a reasonable value.

In both cases we agree.  Software certainly doesn’t always hold the same value to everyone.  We’ve all purchased software that we use a lot, and we feel that it was a great deal for what we paid for it.  We’ve all also bought software that maybe got used once or twice and that we know wasn’t worth what we paid for it. Since the only person that can reasonably determine the value of the software is the customer themself, we’ve decided to let them pay based on their perceived value of the software.  Instead of purchasing the product, or some quantity of the product, customers will instead purchase a quantity of $5 “value units.”  The number of units they purchase is completely up to them.

So now the college student can pay $10 for the exact same software that some company might pay $1,000 or more for.  If you’re unsure if the software will meet your needs you can pay a small amount to give it a try – after all there is value in the effort alone.  If you determine that it does solve a problem for you and indeed does have value, you can always come back and purchase more value units.  What about bug fixes and upgrades?  New features and fixes are added value, so simply come back and purchase the number of value units that you feel represent the feature or fix.

Sure, I suspect that there will be a few people who take advantage of the model.  People who know that it saved them days of work but decide to pay in only $5.  The hope, however, is that those people will be the exception.  Software is never complete – there are always more features to add and bugs to fix.  What drives our ability to add those features and make those fixes is cash flow. We feel that if most people pay what they truly feel is the value of the product, then it will provide us enough revenue to continue working on it, and if the model works for this product, it may well spread and be applied to some of our other products as well.

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