When you think about it, shouldn’t software be cheaper?
After all, it costs almost nothing to produce.
If 10,000 copies of a software product should cost about as much to produce as 100, shouldn’t those savings be passed on to the customer?
While it’s easier to understand the value of physical products, there actually are reasons software is expensive.
Let’s take a look at the top 10.
Why Is Software So Expensive? (Top 10 Reasons)
1. Software Can Save Companies Money
Here’s a hypothetical.
A software system could save a company $10,000.
Why wouldn’t it charge $9,000?
When it comes to companies purchasing software, the software is often priced high because it saves companies substantial amounts of money.
The most popular software suites out there today are software solutions that companies really can’t go without.
Productivity software, project management, marketing, logistics, and shipping—all these software solutions are essentially critical to the way that businesses operate.
Market forces, of course, often determine the pricing of certain software solutions.
While you might be a hobbyist and be interested in a certain software solution, that software solution could be saving companies thousands of dollars in increased productivity and generated revenue.
Some solutions are intrinsic to the way companies operate while others are able to streamline and optimize their operations to the point that the software solution pays for itself.
When looking at a software solution, ask yourself whether it’s saving you time or money—or even potentially producing revenue for you.
It’s possible that you aren’t calculating the benefits of the software into the cost of the software.
Of course, today, many software solutions are offered as recurring subscriptions.
This makes it even easier as you can simply compare how much you spend on the software solution every month to how much it actually benefits you every month.
That doesn’t mean that every software solution will save everyone money.
Each company needs to find the solutions that are best for it.
A great deal of time and consideration goes into doing this.
2. Software Is Expensive To Produce
Software is more expensive to produce today than a lot of people think.
First, there are the labor costs.
A video game could be produced by literally hundreds of people.
Likewise, a commercial software suite could take hundreds of talented individuals.
These software solutions need to make enough to pay for their labor costs.
The more talented the labor force is, the more they need to get paid.
In addition to that, there’s the overhead.
Offices are required to house hundreds of people.
Utilities have to be paid.
Software for software development costs money.
The company may need to pay for licensing fees for other software themselves, as well as tools that they need to make sure that everything operates effectively.
After the software is designed, it has to go through an extensive Q&A process (quality and assurance) which also necessitates testers.
Finally, once that’s all done, the company has to engage in marketing.
For some software companies, marketing is actually the most significant expense.
Without marketing, no one knows to purchase your product, and your product can languish, unknown.
The costs of producing the software really have to be rolled into the cost of the software itself.
Some software companies may take years to break even because these costs continue.
3. Software Can Have A Niche Audience
Let’s say a software solution costs $300,000 to design.
You might think that $3,000 is very expensive for that kind of product.
What if it’s a product that, realistically, only has a few hundred users?
Not all software solutions have broad applications.
For entertainment, such as video games, there could be a fairly small but devoted audience who is interested in those types of games.
For commercial products, the applications can be quite niche.
Consider a software solution that’s for construction companies that use LiDAR (laser scanning) technology for surveying.
That software solution may only be applicable to a very small subset of an already niche market.
Often, software solutions that are very expensive are also very niche.
Not only are they niche, but they are necessary.
These software systems cater to a smaller audience, but because they cater to a small audience, fewer people are producing that software, so they are able to charge more because that niche audience needs their product.
Even software in broader niches (such as sales and marketing) may find themselves in a fairly narrow window just because of the competitive nature of the industry.
They will need to charge more for the customers they have been able to procure because their audience just isn’t very large.
4. Software Still Has To Be Supported
Once software is released, the job of the company isn’t over.
The company has to provide support.
Many software solutions now provide 24/7 support.
It’s necessary, and people have come to expect it.
Moreover, this support is multi-channel.
They need to maintain live chatrooms, phone hotlines, and even in-person technicians.
Software support is expensive.
It’s one of the major things that distinguish open-source solutions from commercial solutions.
Open-source solutions are often free, but they’re released into the wild and usually supported by the community itself.
With a commercial solution, you may not be paying for the development of the solution at all.
Instead, you’ll be paying for technical support.
Even the best and most intuitive solution will occasionally require help desk ticketing.
Expensive software solutions come with support and training to ensure that you’re getting the maximum benefit from the software.
If your software crashes in the middle of the day and starts costing your company millions of dollars, what do you do?
If it’s an open-source solution, you might be out of luck, but if it’s a commercial solution, you have someone to call.
This responsiveness and customer service absolutely affect the cost of the product.
In fact, with many products, you’re probably paying for customer support directly.
5. Software Needs To Be Updated
Not only does software need to be maintained, but it also has to be updated.
Today, most software solutions aren’t just a single iteration.
Instead, they’re progressive apps.
They are improved and updated consistently with new features and functions.
If solutions aren’t frequently updated, they fall behind.
In terms of security alone, software has to be constantly updated.
When security vulnerabilities are found, entire patches need to be made and deployed.
There’s no such thing as a “static” software solution today.
Everything is constantly being improved, optimized, and repaired.
There’s a cost associated with these continual updates.
For the most part, updates and patches are usually free.
Once you buy a software license, you get those updates, so the initial cost of the product has to cover the additional costs that are engendered in the future.
If you’re on a subscription basis, the subscription may seem higher than is fair because that subscription has to roll in the ultimate costs of repairing and maintaining that software.
With most software, you’re getting more than what’s currently on the box.
You’re getting future versions of that software that is more productive, efficient, and secure.
Of course, that’s not always true.
There are always abandoned software solutions and software solutions that are poorly supported for that matter.
When it comes to software that’s a leader in the industry or otherwise well-known, it’s easy to assume that part of the cost is in the maintenance and improvements to come.
6. Software Requires Hosting Fees
Why not just charge a dollar for each copy of software?
After all, it doesn’t cost more to duplicate some 1s and 0s.
It actually does.
Most software solutions today run on the cloud.
These cloud-based solutions take up an exceptional number of resources.
It’s just invisible to you in particular because you’re not looking at those resource bills.
Today, most companies (and even recreational users) upload their processing and memory power to the cloud.
When you run a software solution, most of the processing and calculating is happening “off-screen” so to speak, in a bank of servers.
The company that maintains that software still has to pay for the server resources.
Every time you use their application, you’re actually using up their dollars.
These dollars have to be directly translated into licensing fees.
What about software solutions that aren’t on the cloud?
Even non-cloud-based solutions usually have to be downloaded from a website.
Simply maintaining a website and allowing for downloads can cost a company a pretty penny.
They need to transfer these costs to their customers if they want to remain profitable.
7. Software Requires Ongoing Marketing
How do companies make sure that people use their software?
The answer is marketing, which is expensive and constantly ongoing.
In fact, a really big chunk of your software cost is going into marketing.
Today, companies need to market through social media, on their websites, through telephone calls, and even through physical mailers.
Software companies may hold seminars and classes, they may go to large-scale events, and they may otherwise spend money reaching out to prospects.
The more money they need to spend convincing people to use their product, the more money the product will cost you.
In no small part, this is because many areas of software are currently very saturated.
Companies are finding it harder to compete in a world where there are thousands upon thousands of software solutions.
Even if they have a great solution already, they have to spend money to be heard, and the signal-to-noise ratio is quite bad.
Even established companies are going to need to spend some money on commercials, infomercials, and explainer videos.
Ultimately, this cost is going to be passed on to you.
The more marketing the company has to do that isn’t “viral,” the more expensive the software is going to be.
8. Software Can Be An Industry Standard
To understand this, you need to understand that there are certain industries, such as film, in which a single program is used for virtually anything.
How does software become an industry standard?
Usually, it’s done by just being very good at what it does.
Also, once an entire industry adopts a single solution, it’s very difficult to stray.
Students are taught the program, employees become familiar with it, and then executives start looking for those who are proficient in it.
This is commonly the case with Apple’s video products or Adobe’s image manipulation products.
They are industry standard, and therefore, they can effectively charge what they want.
Companies are not able to operate without them.
Everyone knows them, everyone is familiar with them, and everyone is able to do good work with them.
It’s often a case of, “If it ain’t broke, don’t fix it.”
That also means that the software solutions can command a premium.
Since the entire industry can’t move away from the software solution all at once, they are able to charge businesses anything they want.
They don’t have any competition, even if their industry is not particularly narrow or niche.
9. Software Has To Combat Piracy
A lot of software is regularly pirated.
Though this used to be more difficult to counter in the past (the era pre-cloud), it’s still a lingering issue that software companies deal with.
In particular, game design companies and entertainment software companies may struggle with piracy.
When individuals pirate software rather than buy it, it cuts into the company’s bottom line.
They may feel as though they need to increase costs to compensate for the piracy.
If a company is losing $1 million to piracy every year, it may feel that it has to increase costs so that it can make up for that metric.
It should be noted that it’s unclear how much piracy really does impact software.
Some assume that those who would pirate software would never have purchased the product to begin with, so it isn’t a lost sale.
However, that’s not what matters.
What matters is that software companies do track how much they have lost to piracy, and they do react to it, even if it may not be an accurate number.
Over time, this issue may become less likely to impact cost because software piracy itself is going away.
Because individuals are now streaming a lot of their content and because they are purchasing software through subscription packages, the idea of “ownership” is actually going away.
As long as piracy does exist, though, companies are likely to be altering their prices to compensate for it.
10. Most Software Is Available At A Discount
Another consideration is that the only ones who are paying 100% of the cost of most software are corporations who need it immediately.
The “full price” of most software solutions isn’t frequently used.
Many software platforms periodically go on deep discount to draw in new customers.
Students and non-profits also usually get software at a free or low cost.
Those who are willing to pay 100% of the cost of software are usually either able to pay it (companies that don’t particularly care) or need it immediately (companies that rely upon it).
It’s very common for software solutions to sell at a 90% discount.
This encourages new adoption, but it also means that the full price of a product often isn’t real.
It’s only for those who need the product right away.
If you wait long enough, you can usually get any software product at a fraction of its price.
For cloud-based solutions, you can usually get a “free trial” of the product rather than signing up for it right away.
This is a psychological trick, but it can be considered that software is so expensive so that people think they are getting a deal.
Even subscription-based software will often offer a discounted rate if the individual tries to cancel, revealing that they have a true price point far below what they charge.
If you want to save money on software, you can just wait, or you can sign up for a free trial and then attempt to cancel it.
You can also look for discounts related to education (if you’re a student) or related to your field (if you are a professional).
Many software solutions want to give discounts to students and independent professionals so they can secure the market.NEXT: 17 Types Of Coconuts (Differences, Size, Color, Appearance)