Video games and variable pricing models

Nintendo targets the number of units sold, while Xbox experiments with variable pricing. Which is the best model for revenue growth?

Despite some recent troubles, Nintendo President Satoru Iwata has predicted that Wii Sports Resort, Wii Fit Plus, and New Super Mario Bros. Wii could each sell 10 million copies this fiscal year. Considering estimates that more than 2 million copies of Wii Sports Resort have already sold, the company should be able to achieve those targets without too much difficulty.

What's less clear is if Nintendo can maintain margins to meet sales goals, or if it will resort to dropping prices to hit the big numbers.

Nintendo has consistently introduced good games and interesting accessories and kept both at price points that feel acceptable to pay even in the down economy.

But Nintendo's pricing strategy won't necessarily continue to work as consoles like the Xbox 360 move heavily into digital distribution, allowing for on-demand, variable pricing that can easily shift sales in real time.

The new Xbox 360 Games On Demand service is set to launch on Tuesday and will offer a library of downloadable older-title games. The big issue is not about consumer acceptance, but of disk space--as most players don't have the available hard drive room to accommodate a huge number of new games.

Assuming the hardware catches up to the offerings, one can see why this is a good idea. Microsoft can effectively sell dead (or dying) titles at the same price as retailers can at a theoretically higher margin.

This sliding scale of pricing is a tactic that's been employed very successfully on Apple's App Store, where developers can set prices and fluctuate according to days of the week or other criteria they define to sell more product or increase margins.

Meanwhile, enterprise software sales instead thrive on the ability to discount software in one-off and/or scheduled incidents, which creates an average/mean/median sale price that eventually looks similar to the variegated pricing attempts that we see in consumer products.

And in light of the fact that nearly all, if not all software can be delivered electronically I have to wonder why more enterprise companies aren't taking advantage of variable pricing strategies to reduce their cost of sales and have more control over the buying process.

I suppose one of the big reasons why not to do such a thing in an automated fashion is because big software companies like Oracle sell not just the software license, but also service and maintenance contracts when they engage with customers. And customers have been trained to buy more than they really need--especially in the form of maintenance contracts.

While Microsoft is following Apple's lead in consumer application pricing for the Xbox 360, I hope it realizes that there is an opportunity to address the way that it prices its other products like Windows and Office as well.

Follow me on Twitter @daveofdoom.

About the author

Dave Rosenberg has more than 15 years of technology and marketing experience that spans from Bell Labs to startup IPOs to open-source and cloud software companies. He is CEO and founder of Nodeable, co-founder of MuleSoft, and managing director for Hardy Way. He is an adviser to DataStax, IT Database, and Puppet Labs.

 

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