Affordable software pricing for the world
Software today is not confined to the boundaries of one country. You can build a software product or service and make it available for the whole world. Now comes the question, how much do you charge for your product? As usual, it depends. Many factors, such as R&D costs, personnel salary, sales expenditure, opex, capex, demand-and-supply, etc. At the end of the day, you charge just enough to make yourself a decent profit.
Imagine a product developed in high-cost countries, say the OECD. Think Netflix or Amazon Prime. Typically they charge US$ 10/month or €10/month and most residents there consider it an affordable price. How about pricing for low-cost countries like India or Thailand? Just multiplying by the currency exchange rate, say ₹750/month for India tends to be very expensive and unaffordable for the residents here!
My idea is to mark the price based on the average income earned by an average person of that country, where your customer resides. If your customer is a non-individual like a company or a business organization, it could be the country where they’re head-quartered or that country in whose currency they publish their annual earnings reports. For example, if your customer is a teacher from Thailand, your pricing should factor in the average income of Thailand. If your client is a big org. like Google or Volkswagen, you charge them based on the average incomes in USA or Germany (because they publish their yearly reports in USD and EUR respectively).
What constitutes a good measure of “average income” is a matter of debate. My proposal it to use the Gross National Income (GNI) adjusted for Purchasing Power Parity (PPP) per capita, that is GNI (PPP) per capita. Why? Because it is a reasonable measure of “income” and considers the “purchasing power” of its people. The statistics are published every year by the World Bank. The table is published in the so-called “International dollars”. You cannot use current forex rates (“Google exchange rates”) to convert them to local (national) currency. Instead, you must use the reference table published by the IMF (table below is for 2022).
|Country||GNI (Int'l$)||Conv. rate||Local curr.|
Consider, US$ 10, as a fraction of GNI-per-capita is 10/70480. For Indians, it would be (10 ÷ 70480 × 164832) = IN₹ 23. Meaning, what U.S.Americans consider “as cheap as 10 bucks” is for Indians “as cheap as 23.38 rupees” or “as cheap as 6.18 euros” for Germans.
Consider a real-world example. Recently, Akka (a Scala framework) announced that they are changing their license from Apache 2.0 to the so-called “Business Source License”:
The BSL is a “Source Available” license that freely allows using the code for development and other non-production work such as testing. Production use of the software requires a commercial license from Lightbend. The commercial license will be available at no charge for early-stage companies (less than US$ 25 million in annual revenue).
US$ 25M is a lot of money. Using today’s exchange rates, it ₹ 199.29 crores. How many Indian companies even come close to that? Pretty much 90% of Indian businesses never reach that figure! However, using the above table, the equivalent value is (25M ÷ 70k × 164k) = ₹ 5,84,68,000 or about 6 crores. Basically what Akka is saying is that you can use their software for free as long as your yearly revenue is less than 6 crores. Most startups, small- and medium-scale enterprises indeed fall within this budget – which is precisely the intention of Akka re-licensing.
As another example, consider Google One storage plans. It costs US$ 20/year in USA and ₹ 1300/year in India. Is it an affordable price? Let’s see. Using today’s exchange rates, US$ 20 is about ₹ 1600. Using the GNI-based ratio, it corresponds to (20 × 164k ÷ 70k) = ₹ 47! As you can see, ₹ 1300 is very expensive for an average Indian. He would buy it as easily as an average U.S. American if the price were about ₹ 50.