Reindeer Games

One of the big dirty open secrets of marketing is market segmentation. It’s a popular and effective technique because it exploits several key principles of influence, and — in the case of software marketing — it’s all pure profit, since the product you’re selling costs you nothing.

Consider the following market segmentation techniques that are almost ubiquitous in software marketing today:

  • Academic Prices: if you’re a student, teacher, and/or staff at an educational institution you can get most commercial software at a hefty discount.
  • Upgrade Prices: if you already own some earlier copy of our product, you can usually buy the latest version at a hefty discount.
  • Crossgrade Prices: if you own a rival product, you can often buy a product at a hefty discount.
  • Coupons: just enter this coupon code (often given to members of specific groups, e.g. members of a club or forum, listeners to a radio show, etc.) for a hefty discount

I’m sure my reader knows all this, so why go over it today?

Well, the thing all these very common techniques have in common is that none of them work in Apple’s App Store. It’s probably worth noting that Apple doesn’t use them very much itself. It has it’s “back to school, get a free iPod” deals and, obviously, and it does offer Academic pricing, but Apple only offers upgrades on high-end products (despite including “proof of purchase” vouchers with various software packages for years), and it’s never offered crossgrades or coupons to my knowledge. It’s obviously managed to do pretty darn well without using these techniques, but how will this fly with consumers used to the existing ways of selling software? (Other than mobile software, of course.)

I think it’s a very delicate time for established players in the Mac software market because they have existing users who expect their existing licenses for product X version N to be worth something when product X version N+1 is released. They’re also facing competition from new market entrants who find themselves able to leverage development effort that went into an iOS App into extra revenue on the Mac, and chances are their prices will be lower. It’s also going to be interesting to see what happens with serious products that traditionally have major upgrade/revenue generation cycles. Indie developers who have a small but devoted user-base that pays solid upgrade fees for new features will (if the App Store model holds) be faced with a new business model — sell new features (but not compatibility or bug fixes) or try to get everyone to buy a whole new product.

It’s perfectly possible that none of this will come to pass, and that the Mac App Store will add support for all these segmentation techniques within a reasonably short time. But you have to ask yourself if these features were omitted because they were hard to do or because Apple (or Steve Jobs) is philosophically opposed to them. Again: look at how Apple sells software.

A Brief Aside

One of the biggest reasons I don’t buy PCs very often is exemplified by Dell. Or more particularly, Dell.com. In my last three jobs I’ve always had access to special deals from Dell, and I am often tempted to buy high end PCs to play games and do 3d graphics on, but every time I get close to buying a Dell the following things happen:

  1. I click on some special offer.
  2. I discover it only applies to computers with a bizarrely terrible configuration.
  3. I go to Dell’s website and discover that there are better deals available to random people than the special deal I was offered.
  4. I then start configuring computers that I would actually be willing to buy.
  5. I discover that there are a bazillion contenders each with subtly different annoying limitations and seemingly random price points and I’m not sure which one is the “best” or “least worst”. I also am pretty convinced that there’s probably a really cool deal or coupon code somewhere out there that I’m missing out on.
  6. I decide I’ve wasted enough time and perhaps speculate on building my own PC from scratch using one of the guides on Ars Technica.
  7. I decide I don’t want a PC.

One of the insights Steve Jobs brought to Apple was that having a hugely complicated product line that tries to address all niches tends to make typical customers less likely to buy any of your products. If you can’t tell which product you want to buy you probably won’t buy anything. The problem with Dell (and PCs in general) is that they are not only fractally complex as pieces of hardware, but that when you add the “deal” into the mix they’re incomprehensible.

I’ve written before on how I think coupon codes seem to me to be a bad idea. This is why.

Back to the App Store

The basic idea behind the App Store is that you find something you want, you can tell how much it costs, and then you buy it or not. If the developer wants to manipulate “exclusivity” (the kind of thing that Academic pricing and coupon codes try to manipulate) then the exclusivity has to be global and temporal (“50% off for a limited time”). But I suspect this is far less likely to give the customer the idea that they’re getting a worse deal than other people — which is the flipside of exclusivity.

I suspect we’ll see Apple provide some kind of support for upgrade pricing — probably in time for the new Final Cut Studio release — but don’t hold your breath for anything else.