Daily Archives: October 11, 2007

Why Radiohead Should Price Your Software

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If you are the typical software company, I have a hot tip for you. Call the guys in Radiohead and try to hire one of them to fix your pricing. I doubt they have the time, because they just did something that is turning the music industry on its head. As you probably know the recording industry is in serious decline, and it’s likely to get worse before it gets better. The record companies stuck to high CD prices like stubborn pit bulls for so long, iTunes became the only interesting game.

Pay attention to Radiohead’s new album pricing: users pay whatever they want from zero on up. I haven’t heard the album yet, but they deserve $25 for having the creativity and moxie to do this.

What does this have to do with traditional software pricing? A lot. Although the software industry is in much better shape than the recording industry, it has never been the same since the bust of 2000 – 2003. Enterprise software sales is a fundamentally broken model: it’s too expensive. I met with friend, and fellow musician, Fred Harman at Oak Investment Partners this week, and Oak has avoided software startups for years largely due to this phenomenon. Oak concentrates on larger growth investments to avoid the high cost of sales inherent in most software companies.

When I talk to experienced, traditional software sales and marketing people, invariably I get asked why Atlassian’s prices are so aggressive. “You’re leaving money on the table”, is the common refrain.

But it’s the high price tags that invariably command a squadron of Suits whipping out their Powerpoint presentations and flying all over the place. That’s expensive, and customers are tired of it. Tired of the high prices, tired of the secrecy behind pricing on websites, tired of having to register to get a white paper or request a sales call, tired of the whole process.

A new software company in the developer tools space approached us about a partnership recently. The CEO is a fantastic guy who I could easily see as a friend. When I asked what his software would cost, he said with big smile, “As much as possible”. I smiled back and said, “That’s exactly the wrong strategy.” Innovative companies like his will continue to struggle with faulty pricing strategies.

“This is the industry‚Äôs worst nightmare.” said music industry writer Bob Lefsetz about Radiohead’s bold and brilliant move. Although we certainly don’t think of ourselves in these terms, we do think there’s a _very_ different way to do business, to price, and to treat customers.