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March 20, 2016 | Author: | Posted in internet, technology

Article Analysis of Supply and Demand : Software Pricing

The software business a few years back was at its peak and the growing demand for software gave software companies the leverage to raise prices . When firms bought software it was in the form of a perpetual license and was costly for them . In this context , a perpetual license gave the consumers unlimited access to the software and usually tried to utilize the software more efficiently . Thus lowering the demand for software , prices were also lowered because fewer consumers were willing to pay for [banner_entry_middle]

something they could not effectively use . With a decrease in demand , supply also decreased . This is based on the article Supply and Demand : Software Pricing by Jeffrey Rothfeder , which was published in PC Magazine (2004 . This presents an analysis of the article using the economic theories of supply and demand

Demand is comprised of the desire of the consumer to buy something , the consumer ‘s ability to pay and willingness to pay . Thus , in the peak years of the software industry , business and firms , both multimillion companies and smaller ones bought software like pancakes because of their desire for efficiency , which the software companies promised them Then , business firms had the ability to pay for it since it was seen as an investment and would help them reap more profits . Which also made them more willing to pay for it . When companies bought additional software to complement what they already had resulted to marginal utility of the software , then as companies bought more software that the software company told them to use but could not effectively maximize it contributed to a diminishing marginal utility . Thus , the demand for software begun to decrease , coupled with this the dot .com crash came the supply of software in the market was high , but the demand was low which eventually resulted into a lowering of the prices of the software license . This cycle meant that the software industry is dependent on what the consumer is willing to pay for . On the other hand , the changes in the supply and demand and prices of software can also be brought about by a number of factors , like the rapid technological advancements in IT , the operational costs of using software and even the attitude of managers towards the usefulness and effectiveness of the software

In the past , software companies offered perpetual licenses to its consumers , this meant that consumers would have unlimited access to the software but because of the technological advancements in the information technology , most of the software bought in the past could not run and its usefulness diminished . This entailed getting an upgrade or replacing the software entirely , but because of the past experience of mangers with the huge expenditure in buying software , it made them unwilling to pay for it the second time . A new breed of software companies also capitalized on the existing business environment , wherein they knew that consumers were looking for alternatives and options . This is… [banner_entry_footer]

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