When I saw the subject line of this post I thought to myself: finally,
an economic analysis of the ATA situation. Sadly, this was not to
be. :-(
Everyone knows my general position on Newton software -- namely, that
the community is too small to morally justify anything but free-and-
you're-lucky-to-be-getting-any software models. That being said, of
course Paul is welcome to charge any amount he sees fit for ATA.
Understand that what I'm saying below has nothing to do with what I
think is the "appropriate" price for the product -- only what my guess
is the economically rational price for the product, in the cut-throat
Newton community environment. :-)
What Paul's seeing played out in NewtonTalk is a microcosm of price
elasticity. The idea goes like this. Imagine a plot where the X axis
is PRICE and the Y axis is TOTAL PROFIT FOR PAUL. If Paul charged $0
for the product, even if a billion people bought it, his net profit is
$0. If Paul charges $1000000 for the product, no one will buy it, so
his net profit is again $0. Thus this plot is a curve which starts at
[0,0] (0 profit for paul if he charges $0), then curves up, then curves
back down again until it's at [BIG,0] (0 profit for paul if he charges
the big bucks). Moral reasons aside, Paul's economic goal is to find
the high point on that curve. That is, he needs to find the price which
will give him the highest net profit. A higher price and his profit
drops. A lower price and his profit drops.
Paul knows that there's a fair contingent out there which will stop
using our Newtons only when they're pried from our cold dead fingers.
For this group, the maximum price is clear: Paul can only charge the
amount of money that makes ATA card memory more attractive than linear.
As someone pointed out, the tradeoff point between ATA and linear is at
about $150 right now. Thus Paul realistically cannot charge more than
$100 or there's no reason to use the driver at all, unless you're hoping
to put gigs of memory in your Newton.
Okay, so that's about the upper bound: the Big Bucks position where Paul
gets 0 profit. However, there are other things to consider. For
example, ATA memory is much slower than linear. So his product
diminishes in value there. And there is no support and no established
track record in the product as well. Another hit. My guess is that
this means that the Big Bucks position of $0 profit is probably at $75.
Paul's betting that $50 is the maximum profit point on the curve. I'm
going to go out on a limb and bet that this is too high; the maximum
profit point is probably around $30. The reason for this is that while
the radical nutcase wing of the Newton community :-) will buy at $50,
the ordinary-citizen wing won't buy at that price. Let's say that the
ordinary-citizen wing is twice the size of the radical wing, which is C
in size. Thus at $50, Paul gets $50C. At the $30 price range, Paul,
gets $30 * 3C = $90C. Lower price, higher profit. From a purely
economic perspective, that's my bet.
Why would the ordinary-citizen wing only buy at $30? Shareware authors
have generally settled on $25-$30 as the price to charge for very
sophisticated products. Whether or not this is an appropriate price in
the closed Newton economic situation, there is a *perception* that this
is the appropriate price by the ordinary-citizen wing of the community.
And we're seeing that with people whining about 50 euros (which peaked
recently at parity with dollars, though now it's lower than that -- hey,
maybe soon 50 euros will be equal to $30! :-)
Of course, there are auction approaches Paul could try which would gauge
that maximal price point. He could batch releases of the product into
groups of N, each batch auctioned off as a dutch auction, for example.
Sean
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