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Switching Costs in Software Development

blog.professorbeekums.com

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Re: Switching Costs in Software Development

#21

Post by phkahler »

_Codemonkeyism wrote: post #2

I always wonder why people think the only 'fair' pricing is pricing based on costs. This is not how free markets work.

>> I always wonder why people think the only 'fair' pricing is pricing based on costs. This is not how free markets work.

In a real free market that is how it should turn out. If someone is charging too high above cost, a competitor will likely step in to grab market share by offering the same thing at a lower cost. Companies go to great lengths to make the playing field uneven - "unfair" practices, unfair employment agreements, patents (government granted monopolies), lobbying for barriers to entry, etc...

Lots of people like to talk about "free markets" when they really want no such thing. In a real free market, everything tends toward commodity pricing.

Re: Switching Costs in Software Development

#23

Post by wildmusings »

phkahler wrote: post #21
_Codemonkeyism wrote: post #2

I always wonder why people think the only 'fair' pricing is pricing based on costs. This is not how free markets work.

>> I always wonder why people think the only 'fair' pricing is pricing based on costs. This is not how free markets work. In a real free market that is how it should turn out. If someone is charging too high above cost, a competitor will likely step in to grab market share by offering the same thing at a lower cost. Companies go to great lengths to make the playing field uneven - "unfair" practices, unfair employment…

Even in a perfectly free market, there would not be "perfect competition" for every product. This page lists the many reasons https://en.m.wikipedia.org/wiki/Perfect_competition

Re: Switching Costs in Software Development

#24

Post by Walkman »

mgberlin wrote: post #12

I'm not at all following the argument that being cognizant of switching cost should lead one to choose the underdog. Am I missing something?

the company with the smaller market share cannot make moves so easily because can't afford to lose customers and even more market share, so it will be the nicer guy probably

Re: Switching Costs in Software Development

#25

Post by hinkley »

nickbauman wrote: post #11

Amazon has a great service, but when I experiment with things on AWS the cost always seems to end up at $30-$100 to run the experiment on AWS where when I use Google they typically send me a bill for $1.48 or more recently I got a $0.24 bill. It always seems more expensive to even kick the tires on something with AWS versus GCP. Having said that the company I work for now was spending so much on AWS they had to do so…

You could pay for the care and feeding of five developers for that kind of money (including taxes, infrastructure and support costs).

Maybe something to consider in future build vs buy decisions.

Re: Switching Costs in Software Development

#26

Post by merb »

hinkley wrote: post #25
nickbauman wrote: post #11

Amazon has a great service, but when I experiment with things on AWS the cost always seems to end up at $30-$100 to run the experiment on AWS where when I use Google they typically send me a bill for $1.48 or more recently I got a $0.24 bill. It always seems more expensive to even kick the tires on something with AWS versus GCP. Having said that the company I work for now was spending so much on AWS they had to do so…

You could pay for the care and feeding of five developers for that kind of money (including taxes, infrastructure and support costs). Maybe something to consider in future build vs buy decisions.

Exccept that its really really hard to hire people. Especially in a overblown market were lots of companies want the good people.

Re: Switching Costs in Software Development

#27

Post by driusan »

mgberlin wrote: post #12

I'm not at all following the argument that being cognizant of switching cost should lead one to choose the underdog. Am I missing something?

The argument is that if no one chooses the underdogs, then eventually there'll be a monopoly and no choice, regardless of switching costs..

Re: Switching Costs in Software Development

#28

Post by andrewfong »

jrochkind1 wrote: post #16

> With all the important things being equal, I choose the service with the much smaller market share and encourage others to do so as well. The problem with this is it increases your risk that the company will simply go out of business, which could be even worse than raising prices 10x as in the example. I think it can also raise risk that the company will significantly change it's pricing model too, they don't want…

This. I'm struggling to remember the right game theory term here, but there's a mismatch between what you want for yourself and what you want others to do. It's great if other people to pick the service with the smaller market share, thereby increasing competition, but you yourself probably want to stick with the larger service because of the various network effects associated with being part of the larger service (e.g. not going out of business, third party service compatibility, etc.).

Re: Switching Costs in Software Development

#29

Post by imron »

A financial company I used to work for had a legacy software product used by banks, that the banks themselves had estimated would cost something on the order of $50 million to replace.

The product licensing fees reflected that fact and it was basically a cash cow for the company.

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