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From: thomsen@spf.trw.com (Mark R. Thomsen)
Subject: Re: CD-ROM Drives
Message-ID: <2866304B.1EE9@deneva.sdd.trw.com>
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Organization: TRW Inc., Redondo Beach, CA
References: <1991Jun24.141011.10473@umbc3.umbc.edu>
Date: Mon, 24 Jun 91 17:47:54 GMT
Lines: 77

Brian Cuthie writes
  Mark R. Thomsen writes:
  >
  >But consider this. There is nothing that suggests producers
  >will have to pay and markup if they support multiple media
  >(boxes in the store are marked with the media, order forms
  >have media to mark, NeXTconnection and campus sellers can
  >tailor, etc.). Why not let us pick from the range of media
  >(CD ROM, floptical, floppy) and then order our software
  >accordingly?
  >
  >Indeed, the media costs are a minor fraction of the price we
  >pay for software and most databases. I think the discussion
  >here might be a little backwards. Let us pick the devices we
  >prefer and then we order/buy media (to pop in) from a common
  >range. It won't cost much more for producers to go to master,
  >reproduction, or manufacturing companies for the different
  >media than it would for one media.
  >
  
  Well, I had to disagree somewhere...

It's what makes the world go around, some days.
  
  Actually the cost of media, even floppies, is a *significant* cost in
  the manufacturing of comercial software.
  
  Consider that the average $500 program probably sells to the retailer for
  about $350.  The distributor pays about $200 to $250 for it, and the total
  cost of manufacturing (manuals, labor, media, duplication, etc.) is 
  <$50.
  
  If the program ships on 5 floppies, figure that the cost of a duplicated
  disk is maybe $1.50.  Then, the $7.50 represented by the media, is 
  approximately 15% of the total manufacturing cost.  Obviosuly a dramatic
  change in media cost is going to be intolerable.  Certainly an OD at 
  a cost of around $175 isn't going to cut it.  Similarly, most DOS 
  software companies literally can't stand the idea that they must 
  support two types of distribution media.  It's a mess.  You either put
  two sets in the box (expensive) or you handle it on a case by case 
  basis (more expensive, and it irks your customers).

Actually, this works. The wholesale for 5 floppies is $350. The wholesale
for flopticals is $350-$7.50+$175=$517.50. The customer would pay more for
the floptical in the store, but then he has bought a disk he can recycle.
The idea is the producer passes on the differences in costs, which gets
reflected in price differentials. The free market will undoubtably do
the rest, lower and raise demands, etc. The software company should
remain impervious to the media fashion, modulo stock. Managing stock
with version changes is part of the real challenge for software companies.
  
  Now, in case you think the software company that sells a product
  (retail) for $500 that costs only $50 to manufacture, is ripping someone off,
  you would be suprised. I personally know people with relatively good sized 
  companies that publish internationally distributed products (voted #1 by 
  some magazines) who are healthy, but not obscenely profitable, on these  
margins.
  It costs real money to operate a software company. Costs add up.  Media costs 
  are non-trivial.

I 'moonlight' in a software company and know the economics to a first
order. The margin pays for a lot of stuff that makes it a company and
a product developer. The company should do its best to lower costs, of
course, but it should not hide true costs. When buying software I expect
to pay for true costs of materials, manuals, etc. I know that the OD will
be more expensive, and if I don't want the OD I will opt for floppies. If
I want another OD, why not? The company probably got a bulk rate that
will compare favorably to my purchasing one or two.
  
  >It could work.

  - brian

Or it could not. If someone wants to continue this, I suggest start a
thread on 'Software Distribution' ... CD-ROM Drives hides the topic a bit.

Mark R. Thomsen