Incremental cost of storage software to the manufacturer. Today I got a call from a NetApp customer and he complained about the costs of NetApp software licenses. I told him that we had transferable NetApp licenses & I explained that he could negotiate with NetApp since the incremental cost to NetApp of an additional license sale was essentially $0.00 . I then pointed him to an article about software pricing which helps explain NetApp’s pricing formula. I have some excepts here.

“The more you pay, the more it’s worth” goes the ironic old saying. But when Shapiro and Varian argue the benefits of personal pricing, they turn the old saying on its head and it becomes “the more it’s worth to you, the more you should pay.” Personal pricing is a practice where the information product vendor makes an offer to the prospective purchaser based upon a calculation of what the vendor believes the prospective purchaser is willing to pay.

“Let’s take everybody’s favorite (or least favorite) example, airline pricing,” says Varian. “You can fly from here to New York on a full fare basis, it’s two thousand bucks. If you stay overnight on a Saturday and purchase with a two-week advance notice then it’s maybe four hundred bucks. So now you have to ask yourself, if they could only charge one fare, which would it be. Would it be closer to two thousand or closer to four hundred? And I say it would be closer to two thousand because of the business traffic: business people who have to go! They’re the ones with the inelastic demand. What’s happening is the airlines are reaching out and offering this deal to fill up the empty seats. My claim would be that people are better off because airlines have engaged in that price differentiation.”

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