Sunday, February 22, 2009

Volume Discounts Wrong for Social Software?

Volume-discount pricing structures are the norm in the computer and most other businesses. 

But Julien le Nestour, an adviser, investor, and manager at Schlumberger, argues that for some "products" such as social networking, value grows as users grow ("network effects"), making the value of an application with 70-percent use much more valuable than an application with 10-percent usage.

But under typical volume-pricing practices, buyers pay more for the less-efficient than for the highly-efficient "product." So pricing should invert. Discounts should be offered for low-penetration use, and rising prices for high-penetration use. 

If customers extract more value (higher returns) per user as the number of users increases, yet pay an ever-decreasing price per user (which is VD pricing), value and price have diverged. 

No comments:

It Will be Hard to Measure AI Impact on Knowledge Worker "Productivity"

There are over 100 million knowledge workers in the United States, and more than 1.25 billion knowledge workers globally, according to one A...