The price of CAD software today runs from $0 to over $20,000/license. In the 1980s, the price of software + proprietary hardware + support could top $150,000/seat from the likes of Intergraph and Computervision.
What should the price be?
This was a question that came up often in my meetings with eight CAD vendors in Russia. They have a price advantage over the large American and French firms; outsourced Russian programmers cost just $25-$45 an hour. Even Autodesk CIS offers AutoCAD 2008 for the equivalent of just US$1,000 (AutoCAD's original price tag in the mid-1980s.)
The Russians were particularly interested whether Alibre's $99 offer had been effective.
Some smaller CAD vendors confuse lower prices with higher sales. But it is not that simple, for price consists of two parts: economics and psychology:
- How much does the CAD vendor need to make from each sale?
- How much does the CAD vendor need to share with others (distributors, royalties, and so on)?
- How does a potential customer perceive the software?
- What is the value of the software to the user?
The CadKey Case Study
In the mid-1990s, CadKey performed the economics-psychology experiment for us. In a grudge match, its then-ceo was determined to beat Autodesk, and so dropped the price from $3,750 (I think it was) to $495.
The result was a disaster. Yes, the company gained some more customers. But the added customers put a strain on the company's resources. The $495-price was insufficient for CadKey to add resources. (The blogosphere did not exist back then, so they could not benefit from the publicity explosion that the Alibres of the world gain from $99 offers.)
Some months later, CadKey raised the price to $1,995 (I think) and then back to around $3,000.
CadKey forgot to ask themselves a question that only an outsider can ask, really: "Why would someone buy CadKey software just for its $500 price tag?"