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:
Economics
- 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)?
Psychology
- 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?"
Interesting question. While the price of an app is a factor the real cost is time. Time spent installing, learning, fixing, working around...
It's also true that no app, even if the price is $0, is free. Often the time spent working through the hassles can make a "free" or cheap option far more expensive esp if the words "file translation" are involved
Posted by: RobiNZ | Oct 01, 2009 at 06:40 AM
I remembered it.
Emerging Solidworks and the bad luck selling shares forcing to do that.
Posted by: Manolo | Oct 01, 2009 at 12:53 PM
This is never going to be an easy question to answer as those selling consumables and whitegoods will tell you. Their success comes after much research and many mistakes.
CAD is a tool not a consumable so it needs to be thought about in terms of long ownership and use; complicated by the developers need to generated continuing income.
But as a comparison: the first drawing instruments I bought, my drawing board and machine cost me the equivalent, the best part of a years salary - back in the sixties. They were all of high quality and at the time I was roundly criticized for spending that much.
All these tools were used daily until my full time switch to CAD in 1983. They are all in top order and still available to use when ever I wish too.
The reasons for buying quality was easily justified!
In comparison PC CAD in 1980 cost also cost years salary and more in some cases and has an on going cost that for some means somewhere between two to four weeks of their working years income must be spend annually on the CAD tools?
As a commercial comparison the manual draughting tools have beaten CAD on return on investment, easily?
That's the challenge for vendors and users; how to balance the perceived, against the real value of these tools.
Deelip's latest comments on pricing are worth some consideration.
Posted by: R. Paul Waddington | Oct 01, 2009 at 02:18 PM
When it comes to pricing there is a sad misconception held by 99% of all people that price and value somehow have anything to do with one another. Your assertion that psychology plays into the pricing and choice of a CAD application is spot on.
Let's pick on Autodesk. Not only because they are a huge CAD developer but because it can be fun too.
What would happen tomorrow if AutoCAD was suddenly $100? Units would fly off the shelf! Engineering firms would come out in droves to buy new seats. That would seem to justify the concept of "price sells". But we are talking about AutoCAD.
In this scenario AutoCAD presents a value that far outweighs its new price point. There are:
- 20+ years of experience
- A well known name
- Your clients may require the DWG format
- Your in house standards are set for ACAD already
- You feel better going with a developer you feel will be there to improve and support the product
So what about applications like Blender? Blender is a complete 3d modeling and animation package that is open free AND open source! While it may have a dedicated core of users it's market penetration is nowhere near what 3ds Max is. And yet there is a price difference of thousands of dollars.
So why doesn't the price sell?
It's really quite simple. The concept of a free product or service delivering a value beyond miniscule is utterly foreign to anyone over the age of 15.
Setting aside the fact that firms are willing to pay more to continue renewing licenses because they have an entire business culture evolved around a product. Forget that some users are diehard fanboys and will never switch apps let alone stop preaching the benefits of the CAD package they use. You can even forget that in the CAD industry the cost of ACAD or Microstation per seat is assumed to be the cost of entry to play the game. Forget all of that.
We are suspicious of what is free or cheap. It is all tied to our perceived value. And as long as that perceive value (which includes the 1000's of hours you have w/ the app, the standards you have, the clients you have, the love you have for it and the fond memories of your first CAD line) exceeds the cost of the seat, or at the very least mitigates it, we will continue to pay huge licensing fees.
I think that is probably pretty widely assumed that the price ceiling of CAD applications is temporarily suppressed. I think that will change in the long term. However, when the next generations of CAD professionals and engineers grow up we may see an entirely different economy of value. Those kids that are 15 who have never known a world without the internet and its free services may drive a new economy. They know that free services such as Gmail can and will reliably deliver real value.
I think I have lost my way on this so I will close by saying that the market for CAD software is what it is because of CAD professionals. Developers with a long history and entrenched positions know they can charge large fees because the market will bear it. We are that market.
- Curt Moreno -
The Kung Fu Drafter
Posted by: Curt Moreno | Oct 01, 2009 at 02:30 PM
CAD software price? Currently too high for both the software plus the yearly support fee
Cadkey..!! I've been reading about it more lately that in years past. I truly think that the $495 price didn't really bring any worse luck to the company selling it(Cadkey),
this was a very popular software at the time among its users, me included, mainly because
it was a tool specifically made for mechanical designers, easy to use and the first 3D PC CAD,wireframe, but still very useful, besides there were some versions of it that included 3D axis CNC/CAM integrated along with FEA using Boundary Method and even some SOLID modeling and included a library of symbols, like fasteners, etc.
Now, that was value back then, marketing unfortunately, besides product updates has always been two of the weakest link associated with the Cadkey software until these days after several acquisitions, yet there is a strong following of users out there that if Kubotek were to reduce the price of KeyCreator now like Alibre did, maybe not as much but equally as close, since these products are both different, even thought they target the same user market pretty much, I think KeyCreator and Kubotek would do very well this time around.
In my opinion most solid modeler should cost
between $500-1000 with integrated drafting.
Additional modules for CAM/FEA, etc, that integrate with the core package, then could go for about 1/2 of the price of the main application, this way you only buy what you deem necessary for the work you intend to do.
Posted by: Lou | Oct 01, 2009 at 05:56 PM
Regards the CadKey Case Study: There was quite a bit more to the story than became publicly known.
Posted by: Evan Yares | Oct 02, 2009 at 05:43 AM