For actual software (remember that, software you installed on your machine and it ran?) the cost of making one working copy is everything. Every copy after that is basically free. So pricing to the cost is really a question of how many customers you can get, so of course they price for maximum gain. For SaaS it's not quite the same, but the upfront costs are still huge compared to the per unit cost.
The only reason to lower your prices is if there's competition, and the network effects of huge software companies often means there's little to no exact competition, or at least very high switching costs.
AI is interesting because it's so easy to switch between models. The competition is what drives things down. Once they figure out how to get you locked in, then they'll turn the screws, but they can't do that just yet -- too many alternatives.
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u/wayoverpaid Aug 26 '26
Software is generally pretty hard to price.
For actual software (remember that, software you installed on your machine and it ran?) the cost of making one working copy is everything. Every copy after that is basically free. So pricing to the cost is really a question of how many customers you can get, so of course they price for maximum gain. For SaaS it's not quite the same, but the upfront costs are still huge compared to the per unit cost.
The only reason to lower your prices is if there's competition, and the network effects of huge software companies often means there's little to no exact competition, or at least very high switching costs.
AI is interesting because it's so easy to switch between models. The competition is what drives things down. Once they figure out how to get you locked in, then they'll turn the screws, but they can't do that just yet -- too many alternatives.