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What Factors Affect Computer Software Prices?

By David Bishop
Updated May 16, 2024
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Software is a vital component of any computer system and allows users to perform tasks such as word processing, database management and Internet browsing. The pricing structure of software ranges from free applications such as web browsers to expensive custom programming solutions for corporations. Computer software prices are based on a number of factors, including the intended consumer, development costs, licensing fees, age of the product and an economic determination of what price point will maximize revenues.

Software is divided into two primary markets, home and enterprise. Home consumers generally spend their own money and buy software for fun or to make their lives easier. Software companies often produce cheaper versions of their products with fewer features for the home user. Enterprise-level consumers usually need robust, full-featured packages for their businesses and often pay less per unit by purchasing many software licenses at a time. In the academic market, students and educators often can buy discounted software for school use.

Development costs are another important factor affecting computer software prices. Individual developers can often afford to offer free or advertising-supported applications. Larger software projects with many programmers must generate enough revenue to cover salaries and other costs. While software delivered digitally to a customer has a low distribution cost, any products that appear on a store shelf also must cover their manufacturing and shipping expenses. Pricing in these environments also is heavily dependent on the retailer.

Some software is developed using technology created by other business entities that hold patents on certain types of programming code. The developer must pay a licensing fee to the patent holder to avoid being sued for copyright infringement. These fees, along with the legal costs associated with intellectual property law, can contribute to higher computer software prices.

Certain types of software, such as computer games, use a pricing structure based on the age of a product. Producers charge higher prices for new games that use the latest technological advancements. As more advanced games are released, the price of the original game usually declines until it is sold for a fraction of its original value.

The final factor in determining computer software prices is based on an economic calculation related to consumer demand for the software. While the supply of digital goods such as software is theoretically infinite, the demand for these goods is not. Producers and retailers strive to find a price point that will maximize revenue. This can sometimes lead to higher prices for software with a smaller market base that is heavily reliant on the software or lower prices for software with a larger audience of casual users.

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Discussion Comments
By Logicfest — On Feb 02, 2014

I think the final factor is probably the most important. Software companies have, for years, charged whatever the market will bear in an out-and-out attempt to maximize profits.

There's nothing wrong with that strategy so long as consumers are willing to put up with it.

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