[robbrown451]

The reason things tend toward free in software... at least consumer software... is that capitalism is really optimized for things that have significant marginal cost. Over time, supply and demand tend to cause the price to approach the marginal cost. (the cost to make one more product)

But software has effectively zero marginal cost. Meaning normal competition and the free market just don't work.

Say a company makes some software that costs them a million dollars to make. They figure their best chance of making a profit is by pricing it at $100, and selling at least 10,000 copies.

Now another company decides to compete as well. It costs them a million dollars as well to develop their competing product, which we can imagine is every bit as good and serves the exact same need.

But they figure their best chance of making a profit is to sell it for $10. Sure, they make less per copy, but the lower price should allow them to sell a lot more. So they'll need to sell at least 100,000 copies.

That's bad. There is no reasonable way of saying how much value a single copy has. It's not like making, say, a bicycle where the bulk of the price is to cover the marginal cost.... i.e. the cost of making one more bicycle.

Anyone developing software must realize that they could be massively undercut by competition. It's just not a stable model.

Does anyone remember when Apple's WebObjects product was reduced in price from $200,000 to $699? Then a year later, bundled with the operating system?

[Joker_vD]

Oh, that's easy: just require that every copy sold/downloaded incurs a 5¢ tax on the the publisher. Now the marginal cost is non-zero and we can yet again let the market sort things out.

[forty]

This assumes an infinite market. If you address a market with only 10000 consumers, it's unlikely competition can succeed with prices assuming 100000 sales.

[frognumber]

The size of the market generally scales with your marketing and distribution capacity.

To the point of the original article, smaller companies have a hard time competing due to less reach. That's missing. If I run Disney and can reach 4 billion people, and your 5-person shop can reach 50,000 people, I can either price my product 5 orders of magnitude lower than you, or invest an extra 5 orders of magnitude into development.

That's expensive. If I want to comply with Khazak tax laws, provide support there, and reach distribution channels there, I probably want to pay for an office there. That office might have four people, regardless of whether we sell 1 product or 100 products.

A lot of what app stores do is provide that kind of reach to all businesses, driving pricing down.

Personally, I'm a big fan of government grant funding for free software. It seems like the OS, office suite, video editor, and similar tools ought to have a baseline versions available to anyone for free.

[NeoTar]

Which can also create another problem.

The second company might think there is a market for 100k users, and price accordingly at $10, but only sell 10k copies and go out of business.

Now, however, people see the product as only being worth the lower price point of $10, and won't pay $100 for it anymore. So company A can only sell 1000 copies at $100, and also goes out of business.

[robbrown451]

It does not assume an infinite market, it just assumes a larger market than your example. Everything still applies if you just adjust the numbers downward or upwards to match whatever particular market you are speaking of.