Even people working at a corporation set prices for their work, when they first enter to work for said corporation, and they improve their methods of work in order to receive salary increases. If they don't receive salary increases, they stop contributing on their way to improve their work and they simply heat their chair and wander randomly through email, webpages, etc. Any observer can't for sure realize if they are doing their job or not, since they all seem to be goofing off.
When negotiating salary increases, IT employees tend to mention other's employees salaries and salaries for simmliar jobs at other companies. This is called a market price. If you don't give them what they are asking for, generally they tend to indicate their job relationship is going to finish in a given date, since IT employees are not really good at bargaining.
Most companies know this and either offer bonuses and salary increases (which are generally paid only if the employee threats to leave) or they simply replace the unhappy worker with a new one.
When you need to set a price for something you have created, you need to look at the market for prices and it is always best to use a market price, so that consumers have to decide based on merit.
Most consumers go with the stablishment, that is to say, they prefer stablished companies which have been for very long in the market, and if you have been with a salesman before, they will tell you how bad is the product of said company because it has so many *problems*... and stare in silence for your reply... you think it is not possible for them to know that and they are making it up, do you really want to engage in a technical discussion with a salesman? I mean he is a salesman, so whatever he says is based on somebody else's opinion, so the empty statement will be justified by other empty statements, and so forth ad infinitum. There is one exception though, when the salesman mentionss an specific company that had a problem with said product, this you could call and figure it out if it was true or not, but if you think about it, would people really let you know they had a problem? Even if they are your very good friends, they have no incentive to tell you the truth, and even if they do, most of the information is based on gossip anyway, so you can't trust it.
If you try to outcompete other companies by charging more, you will be out of business in no time. You certainly can't compete if your price is higher than the market price, unless your product is in a different category. That is why some companies market their products as "World class", because it is again an empty statement, but it does make a point on the buyer: Buy this and since "all the world is buying it, your bet is safe", this is just a different way of saying "No one has been fired for buying IBM" a very long marketing tradition at IBM. Then the product doesn't work, you go to the salesman and ask for a reimbursement, but the salesman would reply "I didn't tell you it would work, all I said was that this was a world class". World lesson would be a better term.
So prices are at most market prices unless you invent your own product category, so that you have no competition. But what if I want to charge less than the market price?
The reasoning goes like this: If I charge 50% of what the market price is, I will sell twice as much and therefore I will have the same benefit as my competitors, but after a while 80% of the market will be mine, and since in the computer software business, most companies always want more, I will be asked for more products and therefore I will land a lot more sales of new goods, and since I will be in my own category (no competition), I will be able to set prices, and even integrate those products and dominate the world. Let us call that strategy "World conquer".
The World Conquer strategy doesn't work unless the source is not released (a la Microsoft) and you don't depend on special hardware or special software (a la Microsoft). Microsoft started developing compilers and since today, they use their own compilers. Because of that they could develop their own operating systems.
Have a look, Linux started the same way from GCC. I think this is not a coincidence.
You need vertical integration in order to make money and the same is true if you want to create a free OS. If Linux was written on Microsoft C++, Microsoft could have defined the fate of Linux.
Do you think investors would trust your company if your company was based on Windows and Microsoft C++? Probably some investors would, but I bet those investors would not be tech savvy nor business savvy. Probably you wouldn't get that much money and you would be wondering if you didn't have the right connections.
But people connect on ideas. You need to have the right ideas and let the people with the right ideas connect to you. Eventually everything will be so simple, because people imitate each other, so smart people, when imitating other smart people, behave in a even smarter way, they communicate better, because other people is able to understand what they are saying, and the same ideas are said again a again in different ways.
People with the right ideas attract other people with the right ideas.
You don't need a whole bunch of ideas. I mean 10 important ideas are all you need. The rest can all be figured out because they are the details.
It is not so important to connect to smart people as to disconnect from not-so-smart people. Ideas tend to be memes, so if you constantly speak with people who can only watch TV and soap operas, you will end up thinking like them, or worse yet, not thinking but repeating assertions that do not make any sense, but are in vogue.
Ok, why then setting lower prices doesn't work? Suppose you go into the supermarket and all olive oil is $10 per liter. Then you see a bottle that is only $1 per liter, would you buy? Unless you know the product in advance, you think you are supposed to eat that stuff, not oil your bike, so you prefer the good old and known instead of the new and unknown.
In the corporate world, there is stuff to eat (the important stuff) and stuff to oil your bike (unimportant stuff, unless you use your bike to win the decathlon), and you probably want to make a profit selling your products to corporations, in which case, the product is important to them. If the product wasn't important because they are going to oil their bikes, they would change the price at will, since they have so many offers of oil, and they really don't care if they use your oil of recycled motor oil as long as they can concentrate on the important stuff.
See my point? In order to have market power, you need to understand the real needs of the market, that is the needs that are not satisfied... yet. And once you know them, stick to the market price.
Now let us suppose that you found a market that is not served well, your product is superior and the companies selling all competing products are selling basically crap. If you work as a Java developer you already know all those developers who can't even reverse a linked list, so you know exactly what I'm talking about, since in a given company, sometimes all people left can't code really, but they can look as if they could.
What could a company in this situation do? It could set a price higher than the rest of the companies, so that, let us say, 20% of the market is served by your company with the only good product and 80% of the market is served by the underdogs. Eventually *your* 20% of the market has 100% of their markets while the other 80% is gone. Can it be any better?
This doesn't happen in practice because:
- If you are the only one programmer who knows how to reverse a linked list, your manager will ask you to do it once, and all the other programmers will copy that code, making your abilities irrelevant.
- If the company decides to charge more, all other companies will improve their products until they match all your important features. Over and over during a very long period of time, you will improve your product and they will catch up or die, but the ones able to catch up will sell more than you, because they have a lower price.
So the only way to make loads of money is to charge the market price (or slightly less), have a better product, have strong salesmen, AND have a product no one can imitate.
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