Path: utzoo!attcan!uunet!snorkelwacker!apple!sun-barr!newstop!sun!stpeter.Eng.Sun.COM!cmcmanis From: cmcmanis@stpeter.Eng.Sun.COM (Chuck McManis) Newsgroups: comp.sys.amiga Subject: Re: An issue for the entire Amiga Community. Message-ID: <136264@sun.Eng.Sun.COM> Date: 25 May 90 23:35:59 GMT References: <1990May17.001308.29541@csmil.umich.edu> <136089@sun.Eng.Sun.COM> <11747@cbmvax.commodore.com> <136118@sun.Eng.Sun.COM> <1401@faatcrl.UUCP> <5366@jhunix.HCF.JHU. <1403@faatc Sender: news@sun.Eng.Sun.COM Organization: Sun Microsystems, Mt. View, Ca. Lines: 306 [I actually only found it again recently when I had to recover some files from a backup tape. Anyway, here it is once again... Chuck] > Newsgroups: comp.sys.amiga > Subject: Re: Dongle blues (software prices) > Reply-To: cmcmanis@sun.UUCP (Chuck McManis) > Organization: Sun Microsystems, Mountain View In article <4744@watdragon.waterloo.edu>, palarson@ (Paul Larson) wrote: > In my opinion, your suggestion of software packages for less than fifty > dollars each is ludicrous... Then in article <2408@crash.cts.com> (Todd South) wrote: > Paul, it's your kind of thinking that really blows me away in terms of the > actual authors making money on software. Actually, Todd is displaying a lack of understanding here hopefully we can educate him before he goes broke. I make the following assertion : "It is impossible to sell a product that requires support for less than $99 list and make any money." I offer the following anecdotal proof : You see, a lot of people think "Gee, here I have this wonderful program I just wrote. I spent 6 months writing this I'll sell thousands of copies and become a zillionaire!" But first, you think, "How will I make copies of this thing, it's obvious the ol' A1000 isn't up to making a zillion copies." So off you go looking for a 'Software Duplication' house. You find one, run by a nice old guy who has a couple state of the art Trace disk duplicators, they can duplicate 1000 3.5" disks in two hours. "Great," you say, "how much?" To which this guy replies, "Say $1.50 a disk, if I use the Tan ones, $2.00 if I use those Blue Japanese ones." Knowing how the net hates Tan floppies, you go for the Blue ones. Then you realize "But what about labels?" So he says "Well if you supply the labels I can have my kid put 'em on for 50 cents a disk." Looking at Junior there you decide that maybe you would be better off sticking them on yourself and respectfully decline. Next, you go off to Pip Printing and try to get some labels made. Your girlfriend did the design and used all 32 colors in Deluxe Paint. Pip tells you it will cost $2.50 for each label. You sheepishly ask what a black and white version would go for, they say 20 cents, and you go for it. You can always explain to her later right? Then you ask about manuals. You wanted to put this 50 page masterpiece in those little three ring binders IBM software seems to use, but find out that the binders themselves are $2.80 each so you go for a 'stapled through the back' manual on 9.5 X 12 stock (two 9.5 X 6 pages each.) Splurging, you get a four color cover on heavy stock and the rest of the pages are essentially photocopied. These only cost you $1.25 each. At the same time you have them whip out some 4 X 5 cards that have your address on one side and a mini questionaire on the back, you will use these as warranty registration cards, no problem they are only 10 cents apiece. Did we leave anything out? Packaging! Oh yeah, we have to put this thing on dealers shelves dont we? Hmmm, lets see what a box would cost, $2.00 hmmm, maybe we can use folder thingies, yeah thats the ticket, they are only $1.00 apiece with some printing they are only $1.50. Great, now you have everything you need and its only going to cost $5.05 ($1.50 + $.10 + $1.25 + $.20 + $2.00) each, so to be conservative lets sell them for ten times that or $50 each. Using our marketing savvy we decide to have them list for $49.95 making it sound cheaper. So now you have your production costs figured, you want to make up a few disks, unfortunately you can only get these prices if you order a minimum of 500 copies from Pip, and the old guy doing the disk duplication has a 1000 disk minimum. Ok you say, I'll get 1000 disks and 500 sets of the other stuff. Hmmm, that's $3500 up front. The Visa card has a $2000 limit so we will get the stuff from Pip and then get the disks duplicated when the orders start coming in. After all we only need 20 orders to cover the cost of duplication and I can run the disks for those off on the A1000. So you figure, you'll be making about $44 for each package you sell. Gee if you sell all 1000 you will make $44,000 and that's more than you ever made as a programmer right? Great, unlimited wealth here I come! And even if you don't get rich, after selling the first 80 copies you will have covered the production costs and be making pure profit right? Unfortunately, 1000 people don't buy your program. At least not right away. So you think, "Hmmm, I think I need to advertise a bit to let people know this wonderful program is available. I'll call Amiga World and Amazing computing to see what that would cost." $5000! Heck now I have sell another 100 to make back that $5000. Now you are up to having to sell 180 copies before you start making money, however the magazine will give me credit so I don't have to pay that right away. Besides, these magazines assure me that "thousands of Amiga enthusiasts" read their magazine so I'll probably sell hundreds more copies. So you place your ad and then have to wait three months for the magazine to hit the newstands. It is small, a simple column along the edge of a page, but it's placed well. In the mean time you figure that maybe a trade show would help so you decide to go to The Amiga Show, hosted by a users group in a town only a couple of hundred miles from where you live. No problem, you make about thirty copies of the program on your trusty A1000, package it up and get on a plane for this place. Sure the plane ticket costs $100, and the Motel-6 is more like a Motel-30 but two nights isn't going to break you right? And you can eat cheap, McDonalds is only $5 for dinner. And Pip gave you a really good deal on 1000 brochures, only $50. So you figure you will probably spend $250 for the expenses, and the booth is another $100 so $350 tops. Heck you can make that back by selling 8 copies of the program. Now the old Visa is practically splitting but you know this is a great program so you persevere. At the show you become immediately aware of two things, first everyone is running a 'show' special which is 10 - 40% of list price. Realizing that you don't want to appear to be stiffing everybody for full list you take $10 off the price and offer a show special of $39.95, now you need to sell 11 copies to make back your investment. The second thing you notice is that everyone who passes by the booth is taking a brochure and no one is stopping to talk or more importantly buy. You encourage conversation, with passers by, they shrug indifferently and move on. It occurs to you that maybe this is really a convention of brochure collectors in disguise. You get a couple people to acknowledge you're existence, one even makes a comment on the program "Nice program," he says, "but too expensive for me. Got anything for less the $20?" He takes a brochure anyway. A disheveled gentlemen comes up and asks about your program, you explain what it does and halfway through he says "I'll take one." Great! But he wants to pay by check. You notice he has another 7 or 8 packages under his arm on in bags so you decide to go for it and sell him the package. Of course you take as many forms of ID as he will give you and note them on the check. Then you realize you are ravenous! It's 1:30 already and you haven't had breakfast or lunch. The crowd is picking up so you don't want to leave the booth. You compromise and go to the food vendor at the back of the exhibit hall. You pay $12 for roast beef sandwich and a 10oz Coke. There goes the food budget for today. You get back to the booth and notice that all of the brochures are gone, so you open up the second 500 and put them on the table. Another man steps up and asks you about your program. You tell him what it does and before you can finish he begins to tell you about the program that he wrote that does everything yours does and more. After about 45 minutes of this you politely ask him why he isn't publishing it and he replies he will be starting next month. He also says that his will only be $24.95. You wish him luck and then try to ignore him. A couple of other people come up, talk for a while and then buy your program. A third comes up, wants to buy it but only if she can use her credit card. Since you don't have a merchants number with a bank you have to refuse. She leaves in a huff. Four other people show up all claiming to be editors for national Amiga publications, they all want 'review' copies of your program. Since you have 36 copies left you oblige them. Noting that this added $20.20 to your expenses. The day ends, you have sold 4 copies, given away 3 copies and distributed 1000 brochures. You find a Pip in the area and get another 1000 copies made of the brochure. Because it is a weekend and you want them before 9 am the next morning you have to pay $110. The next day is similar with the execption that this time you brought some bagels and soda from 7-11. The day looks good when you sell five copies of your program in the morning and give away 500 brochures. In the afternoon a young man that looks like a college student stops by your booth and begins talking about your program. He really seems to understand it and appreciates the finer points of your implementation. He even makes some suggestions that you see will definitely improve the program with only a little programming time. After two hours of this he says "Thank you for the Demo" and leaves. The show finally closes and you get ready to leave, before you go, the president of the Users Group hosting the show asks you for a review copy. Being generous you give him one, make the number of review copies go to 5. Then it is back to the motel to add up the results. Sales - 10 copies = $340 cash Expenses - $160 brochures, $100 plane ticket, $60 Motel, $100 for the booth $25 for food, $25.25 in review copies, all totalled $470.25 You only lost $130 on the trip. Gee, now you need to sell another 3 copies to cover that cost. Now you need to sell 183 copies before you make any money. Well some more time passes and your down to your last box of Kraft Cheese and Macaroni, but wait the Mailman shows up and he's looking real tired. You look at what he is carrying and wow! its thousands of 'reader interest' cards from Amiga World! It looks like a million but is probably closer to three or four thousand. Gosh, this is great. But I don't have that many brochures! Run down to Pip and have them print up three thousand brochures, fortunately you only use two colors so they only cost a nickel apiece, but you haven't made any money yet so you borrow the $150 from your Mom, and then you borrow another $660 for three thousand stamps. So you make it an even $1000 so you can package up an additional 700 brochures. Now you need to sell another 50 copies to cover that cost. That brings you up to 233 copies needed to sell. But, your not worried, some of these reply cards must be from some very enthusiastic owners because they circled twenty or thirty numbers on the card! So you spend a week solid of stuffing envelopes and licking stamps yuck! And then drop this boatload of brochures into the mail box. Only a matter of waiting for the money to start flowing right? Another month passes, and the reader interest cards have trickled down to a mere 10 or 15 a week. Now the mail man starts bringing in the orders, 1 here, another there, this one goes to Europe, this one to Ohio. You get about 50 people ordering your program. Since the damn is apparently ready to bust you call up the old guy with the disk duplicator and ask him to run you off 1000 copies of your program. He says "Fine, they be ready next month.". "What!" you say, "I thought you could do 1000 disks in four hours!" "I can," he says, "but you are twelve people down on the list of jobs I got here." Sigh, so you leave the order with him and when after three weeks some of your new customers call about the program you explain that it is still at the disk duplicators. So the month passes and you call back the old guy and he says "Yeah, it looks like it will be another month." "What!" you say, "Another month! How can that be?" "Well," he says "You're sill ten people down on the list and some of the jobs in front of yours are pretty big." So you ask "You mean to tell me that you have only done two jobs in an entire month?" "No," he says, "I've done fifty jobs, but the other 48 were 'high priority'." "And my job is not 'high priority?'" you ask. "Nope, but if you want to make it a priority job you can, it justs costs a bit extra." he says. "How much?" you ask. "Oh, not much, just 50 cents a disk" he says. Well your desperate so you say "Ok, make my job 'high priority'." "Oh, that's not 'high priority'," he says, "just priority, 'high priority' costs an extra dollar a disk." So you ask, "When will my 'priority' job be ready?" And he says "Next week." "Fine" you say, and hang up, realizing you have just added another 11 disks to the number you have to sell before you start to make any money. Bringing that total up to 244. Well, you get your disks in a week, and con your sister and mother into helping you stick labels on them and put them into the boxes with the warranty card and manual. Then you realize that UPS won't deliver these things for free, more like $1.50. So that gets taken off your profit as well. If all your disks are ordered by mail (and they have to be since dealers are not involved yet.) Thats another $1500 fixed cost for 1000 disks, or in sales another 34 copies. So now we are looking at selling 278 copies before we start to make any money. Not to worry though, you sent brochures to the 3700 people who sent you "reader interest" cards, of which 50 have already bought programs! Surely, another 223 will come through? But in reality, since no one has really heard much about your program, only another 200 send in orders. So all you need are another 23 sales and poof you broke even. Then it happens ... It's two-o-clock in the morning and the phone rings. Seems one of your customers has been using your program and just bought a hard disk. Well the hard disk won't configure properly. Do you know what drivers I need? After explaining what you know and getting them to call the hardware vendor who sold them the drive you lay down to go to sleep. **RING** the phone rings again. Another customer, this time on an Amiga with a memory board that was built from plans on a bbs, and installed by a friend. The machine keeps crashing. "Did it crash before you used the program?" you ask. "Yes," the disgruntled customer reports, "but not nearly so much as it does now." You ask further questions and the customer catches on that you suspect their memory board. They get extremely irate explaining that the memory board was built by a friend they trust and that your stupid program is full of bugs. It's now 5:30 in the morning, you try to catch a couple of hours sleep before the alarm goes off. The mail brings in two more orders, and three letters from people who want their money back. It also has a letter from the Visa company telling you that since you kept your balance so high on your card but still payed regularly they were pleased to offer you more credit. By now you have begun to incorporate some of the improvements in the code and are trying to get some programming done. You sprang for an answering machine because the calls kept waking you up or disturbing meals and such. You start getting calls from a bunch of people on your program but can't find their warranty cards in your file. When you check their area codes you note they all live in the same city as that users group who hosted that show ages ago. When the next one calls you ask why you haven't received there warranty card yet. They claim to have forgotten to send it. When you ask where they bought the program they give the name of some dealer. You hang up and call the dealer. No, they never heard of you, but they have heard of the caller, seems he looks alot a never buys any software. He does know how to use it all though, you both come to the same conclusion. At this point all of the "reader interest" cards have quit coming, you are spendin 4 to 8 hours a week on the phone supporting the 260 customers you have, and have still not made any money. Thus you think, I could handle the support if I didn't have to box these suckers and mail them out. I know, I'll get some dealers to carry my product. So you contact a few dealers, and they seem interested, but they want to know what distributor carries your product. Since none do you decide to make a deal with one of the distributors. So you call one up. They seem friendly enough, you tell them you have sold over 250 copies and are looking to expand and that the list price is $49.95. The distributor says "Great, will take 20 at the standard discount." Being naive and not knowing what the standard discount is you ask. They tell you it's 60 points. Meaning they will buy the programs from you for 40% of the list price or $19.98 each. This lets them sell them to dealers at 40 points and then the dealers can still make a little money if they take 10 or 20% off the list price. Of course *you* only make $15 a copy this way but maybe you will make it up in volume? If you go 'into distribution' and run another $5000 advertisement you will need to sell 334 copies to break even. Do you take the gamble? Do you still own your car? So you simultaneously run an Ad and sell some copies to the distributors. The dealers get this list of programs from the distributors, look at the new titles, compare them to see how much shelf space they have, and maybe order a few copies. The distributors 'buy' 100 copies from you but want terms like 'net 90' meaning that they have three months before they are required to pay you. So you agree, try to figure out how you will pay for the AmigaWorld ad and continue to wait. Your next AmigaWorld ad hits and maybe one of those editors who reviewed your package actually got something into print. You sell 50 copies yourself, and the distributor pays up and orders another 100 copies. Your installed base doubles and so does the phone traffic. Now you receive at least one call a day and sometimes three or four. You spend all your time on the phone and no time developing. Sales reach a peak of 120 in one month and then start to slide, so you take out more Ads, now somewhat larger maybe a half page, and the cost goes up to $10,000. Sales steady at 50 a month. Ok, so now you are a going concern, you start making payments again on your Visa and recouping your costs. At the same time several minor bugs and a few 'gotchas' have cropped up in your program. Your users start crying 'Upgrade, Upgrade.' but you have no time to write any code. What do you do? Well you could hire your sister to do support, but that would cut into earnings such that you might not be able to make payments on the Visa card. The situation is that you are indeed selling programs, and making a little money at it, but if you take the money you are making and divide that by the time you are spending on support, running the company, developing the code, and watching the finances you will find that you are making less than minimum wage. If you are relying on this program to make house payments, buy food, and pay utility bills then you find yourself unable to continue. You go out and get a job working for someone else. You could do it if the list price of the program was 99.95 and you had started out making $94 each on the program. It isn't a whole lot better but it is doable. And so it goes, -- --Chuck McManis Sun Microsystems uucp: {anywhere}!sun!cmcmanis BIX: Internet: cmcmanis@Eng.Sun.COM These opinions are my own and no one elses, but you knew that didn't you. "I tell you this parrot is bleeding deceased!"