November 11, 2007
In this era of pervasive broadband, I'm constantly surprised how often I am forced to buy a physical CD or DVD to obtain the software I want. Physical distribution methods have their place, but they should be on the decline by now. Software is best distributed digitally through our high-speed internet connections-- using BitTorrent if necessary.
Instead, I find that download options for commercial software are quite rare. Even when the download option is available, you end up paying the same price as retail or even more. Here's a typical example. I purchased Titan Quest: Gold from Steam about a month ago. I paid $29.95, which is the standard retail box price. But online discounters sell boxed copies of the very same game for $22.90.
|Digital Distribution: $29.95
||Retail Copy: $22.90
Selling directly to the consumer via download means bypassing the entire brick and mortar sales chain. This should result in cheaper prices than retail, not the same prices-- and it should never result in higher prices. Paying a premium for the privilege of downloading software is complete ripoff, and yet it happens all the time.
In this case, Valve is the distributor, so they're getting a healthy cut of the sale price (rumor says 50%). That's still a fantastic deal compared to retail software sales, where the authors will be lucky to get 10% of the sale price. But this "download is the same cost as retail" pricing strategy is particularly egregious when you buy the software directly from the company who created it. That's pure profit, as Greg Costikyan points out:
If you can retain the right to sell [your software] off your own site, do, obviously. Even if your traffic is low, you keep 90% of the revenues, and that's gravy.
Microsoft does allow us to purchase and download upgrade versions of Vista digitally. But as usual, you'll be paying full retail price for the privilege. The downloadable Vista Ultimate upgrade is $259.95, but you can purchase the same product in a retail box for $249.99.
|Digital Distribution: $259.95
||Retail Copy: $249.99
I don't mean to single out Microsoft here. At least they provide the download option for Vista (but, oddly, not for Office, their other cash cow). I've also purchased games directly from EA using their EA Link download service, and you always pay full retail price there, too. Sadly, paying full retail price to download software is a standard practice in the software industry. Oh sure, sometimes they'll throw in some cheesy extras like downloadable soundtracks and so forth -- but does that really make up for the fact that you just increased their profit margin on the sale by a factor of five? I don't think so. About the only "benefit" of buying game software digitally is that they'll (sometimes) let you unlock it on midnight of the street date, so you get a few bonus hours of play before everyone else.
I can understand the desire not to undercut their own distribution channel. I'm sure Best Buy wouldn't be too happy with Microsoft or EA selling software directly to consumers for less than they can on their store shelves. But do vendors assume we are completely ignorant of basic retail economics? Digital software distribution should cost less:
- When vendors sell direct, it's insanely profitable (90% profit)
- When selling through a third-party portal, it's still extremely profitable, far more than retail sales. (50% profit)
- It's more efficient. There are no trucks full of boxes, manuals, jewelcases, and other atoms to be distributed across the world. Distribution costs effectively drop to zero.
- It's more work for consumers. There are a bunch of additional hoops you don't have with physical media, such as DRM wrappers, helper software to install, and a long download period. It shouldn't be like this. Standard Vista style online activation from an ISO image should be all that's required. But you typically get hogtied into vendor-specific downloaders and wrappers that have to be installed on your machine, such as Steam, and the EA downloader.
Unfortunately, the state of digital software distribution is so bad right now that it's almost a parody of itself. It should be a wondrous, democratizing tool that pushes software pricing down by naturally leveraging the inherent efficiency of bits over atoms. Instead, as it exists today, the digital distribution of commercial software is intentionally crippled. It's only useful for the rich and impatient, a fact vendors exploit to line their pockets with obscene profit margins (even by software industry standards, which is saying a lot). The average consumer avoids digital software distribution entirely in favor of retail discounters. Can you blame them? With every download at retail prices, you're effectively paying vendors five times as much for the same software, and that's a huge ripoff.
It seems to me that, in the area of digital distribution efficiencies, commercial software still has a lot to learn from the open source world-- where everything is downloadable by design. I hope they can adapt before they're forced into extinction.
Posted by Jeff Atwood
The market *will* bear it, 'cause Jeff here paid for it. 'nuff said.
But it's all food for thought. A number of people have made the correct observation that going to an all-download distributorship might a href="http://tailguard.blogspot.com/2007/11/hidden-costs-of-digital-distribution.html"cost more than you think/a. And some other Chris has got it exactly right, but we'll leave that post for another day.
Piracy is the world's most efficient distribution network. Instead of hiding from it, vendors should be figuring out ways to embrace it, and harness its power.
If that's what you really want, then perhaps instead of using the overloaded and demonising term "piracy", we should more accurately talk about it as "file sharing".
Seriously, people. If you keep using terms *designed* to frame the debate against actually sharing information, like "pirate", "intellectual property", "copy protection", then how can you expect the discussion to go in favour of sharing information?
I totally agree, I have been arguing this same stuff with my friends over the new online DVD craze! How is it that we are using our own bandwidth and hard drive space to download these softwares and still paying the same price! I will tell you how supply and demand, people are paying the prices so why should they cut it? As long as people are willing to pay the retail price for something they are downloading no company in their right mind would drop the prices. Until that day comes though, I will not be purchasing downloadable content, at least if I purchase the hard copy I get manuals and cases. Save myself some printing fees and hard drive space.
What makes me mad is when you pay a bill online and they want to charge a fee to do it online. Let's see, no light bill, no rent, no employees....shouldn't I get a discount.
I stick to Free Software. If I'm going to spend money on it, it will be via donation. Other data is harder to do that with, but I'm trying.
These days I use Ubuntu Studio and get my music from jamendo.com
If you don't want us enjoying your infinitely replicable art without paying you, fine... but you can't stop us from competing you out of a job. If you don't embrace the nature of information, we will. It's a matter of time, nothing more.
Ubuntu add/remove programs actually works. Whenever I have to look for a piece of functionality for Windows or Mac these days I cringe, why can't it just be there--apt get....
And Mac's Port thing is no help, by the way. Poor selection and it requires compiling. On my mac they failed left and right.
What happens when Steam goes out of business?
What happens when Microsoft/EMI goes out of business? You've still got the DVDs/CDs you paid for and burnt.
Consider this. If you want to maintain your brick and mortar sales channel, you can't undercut them with your online store.
So, the safe thing to do is to charge full list price at the online store and let the traditional channel undercut you with discounted product.
Simple solutuion: Don't buy it.
I have not found prices for digital distribution to be higher, but I have found delivery times to be much higher. Specifically, via a national software reseller, I cannot (read, will not) purchase electronic copies of software from Apple or Adobe. There is little to no price difference between buying 20 boxes of Adobe CS3 and 20 licenses. The difference is that the boxes can be overnighted and the licenses take 2-3 weeks to process.
The same goes for Mac OS. I wanted to purchase 20+ Leopard upgrades and the time to process electronic licenses was weeks where as boxes were sitting in a warehouse ready to ship in just days.
It is simply ludicrous that we are dumping boxes, DVD CD's into landfill and transporting media across states, using tons of fuel in the process, when electronic bits over a wire will more than suffice.
I am similarly frustrated with the pricing of content on XBox Live. Guitar Hero 2 downloadable song packs raised a lot of ire for their price: $6.25 for 3 songs. Yes, that is more than twice the price you would pay from iTunes, and you can't choose all 3 songs, you buy them as a bundle.
The defenses that I read mentioned the cost of licensing, and the certification and deployment preparation needed for each piece of content that was required for each downloadable unit on XBox Live (which is why it you would package 3 songs into a single unit, rather than go through the process for 3 different units).
If that truly is the case, and the price is justified by the expenses, it just proves to me that the micro-payment XBox Live model is a failure. We know that a publisher can put 70 songs in a box on a store shelf for $59 (as they did with Guitar Hero 2 and Guitar Hero 3). If the songs were instead made available via XBox Live, they would cost over $140.
Another issue is that, especially for PC games, there are fewer and fewer actual stores where you can walk in and buy them in the first place. Most stores have very limited selections, so in most of the U.S. you're stuck with either ordering it on the internet (as a digital download or to be shipped to you), or going to Best Buy (one of the few places that keeps a decent selection of PC games available across the nation). Most of the game stores, especially now that they've consolidated into one entity, no longer carry PC games in the majority of their locations.
So, when looking at shipping costs and so forth, it's still a shame that I can manage to buy something from one of the major online retailers and receive the manuals and disks and get a better price than I can through steam or some other digital distribution method.
The upside to steam, as already mentioned, is the ability to download it as many times as you wish. Of course, you have to remember your login information, and even if you bought the disks you're pretty much screwed if you can't remember that (for Valve's games, anyway).
Though I am glad to hear it's helpful for non-US residents, who evidently get shafted on software pricing..
Alas, we not only get shafted on software pricing but on hardware as well. I recently looked at nVidia's webpage and found you can buy a Geforce 8800 Ultra for $597, here in Sweden you can buy it for SEK 5700, which would be ok if $1 ~ 10 SEK, but $1 is actually ~6.35 SEK which means we pay 50% more than americans for essentially the same hardware. Same deal with computer books, I've seen a $20 book in the US, retail for $100 here in Sweden. What would we Swede's do without Amazon?
This is not a problem that is unique to the broadband age. Back when I was doing game development for an indie developer in the early and mid 90's, we self-published all of our titles. We had distribution though both the retail channel and by direct sales from us. We could easily have charged 20% less than full retail and still made more profit than selling wholesale to the retailers, but we didn't dare. The danger of having a retailer pull a title from the shelf and losing exposure was just too great.
The retail channel may be weaker than it was, but no marketing hack is willing to risk losing that exposure yet. As long as software is still sold by the "Brick and Mortar" retailers, you won't see any price difference.
You are not alone, but think about this:
Try comparing prices for Adobe CS3 Master Collection in the Adobe web store.
USA: CS3 Master Collection $2499 (download same price)
FI: CS3 Master Collection €3414.78 (download €3386.79)
So, exactly same, english version costs about ~1645.37eur (currency converted with Google) if you are located in the US and have US credit card (they check for it) and if you are located in Finland it'll cost you 3386.79€ if you take the digital download (13,2 Gigabytes..) That is twice as much as in the US! The software ISN'T localized, since it's the same version, downloaded from the same server.
It's cheaper to take few days off and FLY to the US for short vacation, and while there - buy the damn software from some retailer.
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Your view is too much user oriented.
Enable Digistal software Distribution is not free:
1) Data storage.
2) Internet connection (WW or centralized)
3) Catlaog maintenance.
4) Dev of new update system for instance
5) maintenance of hardware and software behind this distribution.
You are right is cheaper than physical shipment, buroing etc but its' absolutly not free.
Just an example:
What is the cost for you of an internet conenction in a country allwoing to distribute deserve 100 concurrent download at 200KB/s.
(about 150Mb/s UPLOAD line)...it's free for you ? And with a 24/24 support service ?
And now in europe you acheive 1500 concurrent users...what is the price ? hmmmm
It's absolutly not free !
We are not speaking about personnal dat exchange bewteen 2 PC around the world but about software distribution, saclable and with a minimum service for consumer)
I am going to diverge from popular opinion. I love Steam. The other day I got Bioshock for 5 bucks and downloaded it at 3 megabytes a second. Hard to complain about that.
I'm not sure the what the customer will pay argument is valid here. After all I could refuse to buy a 360 because the games are $60 instead of $50. Any why am I told that they cost $60? Higher manufacturing costs and inflation. So it's ok to raise the price because of manufacturing costs but it's not ok to drop the price because of reduced distribution costs? I can understand the EB and Best Buy are evil argument, and customers don't know better argument.
Ubiquitous broadband is probably the answer we're still waiting for. But the companies most likely to be able to stick it to Walmart and not lose all their business also sell hardware and peripherals. So I'm going to take a hit there in the short term when the BMs refuse to stock because they're not quite ready for obsolecence in the software market.
As someone mentioned this is to avoid channel conflict. Like Intel, the bulk of MS's sales doesnt come from retail but through distribution channels. Since the channel almost always sells through at a discount, the easiest way is to sell online at MSRP. The retail channel for the OS is very small compared to all the other ways vista is sold - corporate licensing and oem as they are simply the volume ways that the product is sold. if I guessed, I would say OEM is 60% of sales, corp is 35% and retail is like 5% or smaller
Steam is an awesome concept, but fails in implementation IMO. Though i use it a lot because i like the games it offers LOL.
A lot of people are mentioning "all you need is the username and password of your account, and you can load games on any PC an infinite number of times?"
What happens when Steam goes out of business?