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April 11, 2005 / jnolen

Cheaper by the server

Mike has a killer post today about how Atlassian has chosen to price its software. He references Paul Graham's much-linked post about "How to Start a Startup."

I would also point to Joel's Spolsky's post about software pricing that I have written about before. On the other hand, Joel's FogBugz is one of JIRA's competitors, so perhaps Mike just figured it wasn't smart to be sending more traffic his way. (Interestingly, it turns out that Fog Creek prices FogBugz in the same range as JIRA. It's more expensive, but still the same order of magnitude — definitely below the PowerPoint Line.*)

Also worth reading is JWZ's post about groupware, which I mentioned here.

So anyway, now that you've done your homework by reading the relevant literature in the field, on to Mike's post. His core argument is sound: selling software in the six figures is a much riskier business because there are far fewer customers capable of buying your product. You've concentrated your risk into just a few very high stakes throws of the dice.

I would also point out, as Joel does, that selling six-figure software very quickly becomes about issues other than technology. Atlassian’s advantage from having built a great product would be immediately lessened.

Jason of 37Signals has said that you should “Hire the right clients.” It’s something that they very much do with their product (Basecamp).And it’s exactly what Atlassian is doing with JIRA and Confluence by setting the price points where they do. They are deliberately choosing not to compete for those customers who demand that much sales overhead. They’ve avoided getting into a business that demands all of that extraneous crap. And as Jason says, that will have a “huge impact on your happiness, productivity, quality, and the future of your business.”

What’s more, I can back up Atlassian’s pricing strategy with a real-world example. As I’ve mentioned before, we use Atlassian’s bug-tracker, JIRA. JIRA is a great piece of software. Beautifully designed, well-thought out and it just works. But that wasn’t the factor that actually convinced us to buy it. Once we had tried the demo and decided that it was, in fact, a really good bug-tracker, it came down to money.

At the time, a single server JIRA license was only $1,200. $1,200 to support our entire development organization. So I whipped out the credit card. No bureaucracy, no purchase orders, no meetings, no approvals. Bam — just like that, another sale.

If JIRA had cost $120,000 instead of $1,200, the purchase process would have devolved into a months-long morass of multi-vendor RFP, demo-meeting, contact-negotiation hell. Atlassian would have had to send people to our office at least three times. And in the end, they still might not have gotten the sale for any of a hundred reasons, none of which had anything to do with the technology.

Why would you want to make it that hard for someone to buy your product?

* Basically, if your software is expensive enough that you can afford to send a salesperson with a PowerPoint presentation, I don’t want it. I can’t think of a single piece of very-expensive software that I use in my day job (and there are a few) where I wouldn’t be immensely happier using any one of several cheaper alternatives. In my experience, products with price-tags in the six figures are built to satisfy the VP who signs the checks rather than the developers who actually have to use them.

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