Disruptive Pricing

In 1990, the editors of a computer magazine planned for a tenth anniversary issue. One of the tasks: find out the prices of technology ten years before for some startling comparisons. The research provided the information that about 1980, a laser printer cost a half-million dollars. Or course, even in 1990, those devices were much cheaper. That kind of pricing collapse is not the exception in the technology market. It’s as close to a rule as technology products become more powerful; they also become much less expensive. A similar thing happened with the change from mainframe-based service bureau processing of tax returns. A colleague once related that an executive of such an operation confided that his company had expected prices to drop sharply with the adoption of desktop tax software. But the company couldn’t cut its own prices quickly enough to compete. Something similar is happening in midmarket accounting software, at the low end. A CPA who does reselling and consulting said he had just replaced a $400,000 system with $3,500 of software from Intuit, its QuickBooks Enterprise Solutions package. It’s not just Intuit chipping away at the bottom of that market. It’s also Sage Software pushing Peachtree Quantum, designed to keep Peachtree users from migrating upward in the same way QES was designed to hang onto QuickBooks users. From grumbling in the channel, it’s clear that Quantum is cutting into the number of users upgrading from Peachtree and MAS 90 while QES is cutting into the number of users moving up to about everything else. Intuit has been taking 12,000 units of a year away from the market and that is a sizable amount. Sol, it’s no surprise that resellers are moving upstream. The Sage channel is pushing MAS 500 and the Microsoft channel is moving towards Dynamics AX (formerly Axapta). Sage says sales of MAS 500 went up 17 percent for its year ended September 30, way above the level for the rest of the mid-market products. And what happens to the mid-market—it disrupts the Tier 1 players in exactly the same way.