Jon Udel is a big fan of using screencasts to instruct, and I’m a big fan of watching them when I want to learn something. I’d like to start doing some of my own. However, reading his post on screencasting tips today, I was reminded of how I can’t help but think that TechSmith is really missing out on a huge opportunity because of their pricing for Camtasia Studio.

I’ve followed them for a while, and I know that they are pretty much the gold standard for screen recording software. However, their price of $299 is in no-man’s land. It is too low for the market it currently targets, the corporate market, and too high for a much, much larger market; the amateur and semi-pro blogger.

For those company’s who need the software, TechSmith could easily double the price and would probably still sell 90% as many units. But of course, the lost 10% would be well more than made up for by the increased price per unit.  And frankly, a higher price would motive resellers more (which, as a former reseller, I always hated that my business did better financially when I raised prices on customers.)

On the other hand, $299 is way past the threshold where an amateur bloggers would buy a copy. Frankly, I think that is the reason why we see so few screencasts on the web. In my 12+ years experience in selling software tools to developers, I’d say that $69 is probably about the right price for an amatuer to semi-pro blogger to say "Sure, what the heck, I’ll buy a copy and try this screencast thing." 

TechSmith could easily cut feature features from this blogger version to differentiate from their professional version. For example, the blogger version could be limited to outputting only to Macromedia Flash, i.e. no AVI, Microsoft Windows Media, RealNetworks RealMedia and QuickTime. The could cut the output-to-EXE feature and the Create a CD-ROM feature. And probably a few more things. 

But TechSmith would need to be extremely careful NOT to cut the features that bloggers would really need. I ran into this over and over with components vendors while running VBxtras/Xtras.Net. I’d suggest a lower-priced version so they could reach a slightly different market, and the vendor would want to cut so many features of the product that it would have been crippled. Instead what’s needed it to look at the features that are needed only by the high end customers and cut those while leaving feature every users could benefit from. For example, if TechSmith were to cut any of the recording, pre-production, or editing features they could very well end of with an expensive demo and lots of frustrated customers badmouthing them on the blogs.

But what they could do, given this market, is to have the screencast on the blogger edition end with a splash-screen/advertisement for Camtasia. Imagine that, having the ability to get advertisements on a larger percentage of the blogs on the web and the only thing requires would be to restructure an existing product! Can you say "No Brainer?"

So, what would this look like?  I think if TechSmith were to offer two editions with the following prices they’d see a surge of new customers, the web would see an explosion of screencasts, and that would be great for (practically) everybody:

• $69 - Camtasia Studio, Express Edition
• $599 - Camtasia Studio, Professional Edition

So, if you are a blogger who thinks is a great idea and you’d be anxious to buy a copy of Camtasia Studio for $69 but wouldn’t even consider paying $299, why not go over to TechSmith’s website and send them some feedback on the subject. And be sure to point them to this URL so they can read my justification. Together, we can make a difference. :-)

P.S. One thing the skeptics in the audience should know is that I have recently started playing with the free software called Wink from DebugMode (thanks to Ben Coffey for the recommendation.) While it is great, I’d prefer the polish of Camtasia Studio. However, at $299 they won’t be getting a dime from me. On the other hand, for $69 I’d happy spend the money for the time and frustration it could hopefully save me, and I bet lots of other bloggers feel the same.  So what will it be TechSmith: "$69 in revenue, or nothing?"

bencoffey, blogs, camtasia, dns, economics, pricing, screencasts, techsmith, wink

I’m not an Economist; during my high school and college, economics was for me in the category of “couldn’t be more boring.” But time has passed and both events of the world and my life have increasingly interested me in economics, especially as they relate to making business decisions. And I’ve read a lot about the topic econmics in recent years including books and magazines. I love to pick up the Economist from time to time, but since it takes me a week to read an weekly issue, I don’t subscribe to it for fear I’d get nothing else done! :)

Anyway, today I’m writing about a concept I’ve both witnessed and studied many times over the past several decades: the economics of value creation. I’m going to use examples, but am trying to keep it very short so I won’t be referencing other factors that might complicate the picture.

Clayton Christensen argued in Innovator’s Dilemma that good companies trend “Northeast” by which he meant companies typically strive to increase prices and margins (the direction Northeast refers to the trend of the graph of margin over time.) If you speak to any enthusiastic sales rep, you’ll see the same desire; to close as big a deal as possible.

So the tendancy to strive for higher prices is ingrained but often, doing so it counterproductive. What I believe people often fail to consider is the value provided to the potential customer. Yes there are value-based pricing models, but those are focused on convincing a prospect of the “value” to justify a higher price. Instead, I’m referring to the value that can be derived from each and every potential customer; the lower the price the more potential customers can derive value from the service or item sold. Further, I’m focusing specially on services and items used by businesses to create things of even greater value.

Let me explain by using a contrived example:

Let’s assume a small US town somewhere in the 1800s far away from any other town or city (i.e. essentially a closed system.) Let’s assume most inhabitants were farmers, and someone opened a fertilizer plant. Let’s consider two of the farmer’s crops: squash and tomatoes.

Each crop requires a certain amount of fertilizer; let’s assume one (1) unit to grow a squash and three (3) units to grow a tomato. Further, let’s assume that one (1) squash produced twice (2 times) as much food as a tomato, but the town’s people would buy twice as many tomatoes if price were no object.

At first the fertilizer plant owner charged 0.2 cents per unit of fertilizer, and the market set the prices for squash and tomatoes at 5 cents each prior to adding the cost of fertilizer. The town’s average monthly purchases for squash and tomatoes were 10,000 and 20,000, resectively. The fertilizer plant owner made $370 per month, and the farmers made $1640 per month in aggregate for those two crops.

Later, the fertilizer plant owner decided he could raise his prices since he had a local monopoly. He increased by 0.3 cents per unit to 0.5 cents. This forced the farmers to raise their prices to six (6) cents for squash and seven (7) cents for tomatoes. Times being hard, that extra cent for the tomatoes caused the townspeople to rethink their spending habits. Consumption changed to 17,500 squash and only 5000 tomatoes (remember that a squash provided twice as much food as a tomato.)

Guess the net result? The fertilizer plant owner lost $101 per month in sales, and what’s far more tragic, the farmers lost $352.50 per month in aggregate because of a decision they could not control. Well the squash farmers were dancing a jig while the tomato farmers were devastated, but that’s not the point. :) Here’s a table showing the details:

Real life is not as clear cut as my example so the fertilizer plant owner would probably not realize the direct cause and effect. Of course in the world today someone would notice that the fertilizer plant owner was raping the farmers, build a second fertilizer plant, and possibly put the first out of business. Hopefully you can see from my example that raising prices doesn’t automatically increase revenue. Sure you might bring up the well known supply and demand curve as evidence this is a no-brainer, the most discussions of supply and demand don’t contemplate the effect of value creation downstream such as the value created by the fertilizer in producing tomatoes. At a reasonable price consumers would buy the tomatoes even though they provided less food. Once the price got too high, their consumption dropped, and so did the fortunes of the fertilizer plant owner and the farmers who grew those specific crops.

Let me bring it back to the real world and give more direct examples:

• Imagine if a business having a toll free telephone number cost $10,000 per year and $1 per minute. How many business would never have started using them, and imagine how much business based on toll free access just would not happen?
• What if the least expensive computer cost $5000 each, like the first PCs used to? Think about how many businesses that offer services today using computers couldn’t offer those services because they couldn’t afford those computers.
• What if there had been no free browser software; if browser software was sold for $199 each, for example? Do you think the world-wide web would have developed?

I could go on and on with examples, but they all boil down to the following:

Items and services used to create added-value items and services follow a different economics model than pure supply and demand. If the price it too high for those initial items and services, overall value creation will be retarded. Conversely, if the price of those initial items and services is lowered, it can empower greater value creation, and the demand for the original items and services may increase exponentially. This definition assumes the value ultimately created supplies an existing demand, or empowers creation of new goods or services for which demand evolves.

I’ll finish with this final example and follow it with a few parting rhetorical questions:

Imagine you invented a process to create an alternative for oil that did not pollute, only cost you one (1) dollar per barrel to produce, and you had no limits on the quantity you could produce. Let’s also imagine you were able to secure exclusive worldwide rights to this process. You could price your oil alternative competitively with the current price of oil or even higher because it did not pollute. If you were a modern day oil company, you would probably do that. Since you controlled the process, you’d probably maintain your high price indefinitely. However, imagine if instead you priced it at half the cost of a barrel of oil? You’d quickly become the leading supplier of fuel in the world (and you would devastate the Middle Eastern economy, but I digress.) And then imagine you continued to slowly lower your price, approaching “essentially free” over time. In this scenario, if fuel were essentially free and it did not pollute, how many entrepreneurs do you think would find ways to create value in new and previously unconsidered ways? How much of your fuel do you think would ultimately be consumed?

business, economics, pricing