Re: Ada's (in)visibility and pricing!

[SAHARBAUGH@ROO.FIT.EDU]

pat gioannini asks:
I agree, this is insane.  The Sun SPARC 1 compiler is probably
identical to the Sparc 2 ( and if it is not it should be ).  
When I asked one vendor why they had this pricing arrangement
the said that it was because of the precieved power of the
machine; the compiler was in fact identical.  I asked another
vendor why their VMS compiler was ~$50,000 when their unix
compiler was ~$10,000.  Both of these compilers were cross compilers 
to the same target.  The answer boiled down to people
expect to pay more for a VMS compiler.
 
Can anybody give a rational explaination for these pricing
schemes.  For people who what to use Ada pricing the the 
single biggest problem.


Ok, I'll take a shot at giving an explanation:

1.  Price and cost are not necessarily related.
2.  In a competitive economy all equivalent products
are priced the same. (This is the argument suppliers
may use when accused of price fixing)
3.  It is comfortable for a vendor to price his
product based on "displaced costs".  e.g., I have
a product to sell you for $1 and you will save $2
every month.  If the buyer has the $1 he will be
very anxious to give it to the vendor.
Now as to the Ada compiler pricing:
If the compiler is for a PC the vendor knows
that it will support one software developer
at say 100 lines of code per minute.
If the same compiler is hosted on a Unix box
with 10 users then 10 software developers
can use it, each at 100 lines per minute (averaged
over say a 30 minute interval).
The user gets X10 benefit, the vendor should get
X10 price.

In general, the economists use a model called
a "demand curve".  The vertical axis is the number
of units sold and the horizontal axis is the price
per unit.  The general shape is y=1/x, i.e., as the
price per unit goes to zero, the number sold goes
to infinity; as the price per unit goes to infinity
the number sold goes to zero.
The vendor looks to maximize revenue and looks to
the demand curve for guidance.  His revenue is
price per unit times number of units sold, or
R=X*Y. He seeks to maximize R.  Geometrically
X*Y is the area of a rectangle whose upper right
corner touches the demand curve.
Now as to Ada compiler pricing:
Who knows the demand curve? Probably noone.  It
changes with the economic winds, competition etc.
The vendor must feel it out.  Have a sale, drop your
price and see what happens.  If R goes up then you
know you are going in the right direction.  If it
goes down then don't continue the sale, and next try
adding a feature or two and raising the price.
( You have heard the joke, "we lose money on each
sale but we make it up in volume" That is not a joke,
it is called "marginal pricing" where you sell below cost
but volume goes up, R goes up, you overabsorb your
fixed cost and make additional profit in excess
of the original loss.  Its a lot of fun if you're
playing with someone else's money.)

I don't vend Ada compilers but I do vend Ada related
services and products.  I have a LOT of sympathy
for Ada compiler vendors.  Their market economics
is distorted by one dominant customer (Uncle Sam, no
relation) and their users are very smart, some smarter
than they are. (What I mean is knowledgable of the
technology, not basic IQ).  They are caught where
the Capitalistic system is trying to serve the
Government.  They aren't allow but they are
They aren't allowed to make much money but they 
are allowed to go broke.  No wonder they look to
C++ where the market forces are "normal".

I hope this helps some.  I would suggest a book
on Product Management for the interested reader.
sam harbaugh saharbaugh@ROO.FIT.EDU        
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