Where next for software pricing?

One of the main benefits of the steadily declining value of the US dollar against other currencies during the past three years has been, for those based outside the US at least, the massive savings to be made on a wide range of products.

With one US dollar currently worth roughly 53p, that's a promise of huge savings for UK designers looking to save on the price of an upgrade of their favourite creative software package.

Unfortunately, it appears that UK punters are being forced to leave US websites empty-handed - and spend their high value sterling in UK web stores and reseller outlets instead. The reason? The big guns simply don't want UK residents to pick up their products at US prices.

The situation is even blighting the hardware market, with the recent launch of Apple's Mac mini drawing particular criticism from disgruntled European and UK consumers. 10,000 punters felt so strongly about the price difference that they added their names to an online petition demanding fairer prices.

"We'd like to make an appeal to Apple on the pricing of the new Mac mini in the European Union," the petition states. "Based on the last long-term rate of exchange of US dollars to euros - which is 1.3293 on the spot market - both of the announced prices of the Mac mini in Europe, 489 euros and 589 euros, respectively, are much too high."

While Apple has responded to the petition in the UK by attributing prices to higher shipping costs and the need for a currency fluctuation "cushion", costs for the software industry are obviously different, so how do the vendors justify the current regime? And what's the outlook for these price differences over the next six months?

HIDDEN COSTS
"Primarily, prices differ so much from territory to territory because the cost of doing business also differs," Quark's UK marketing director Gavin Drake, explains. "This includes staff costs, property prices, shipping and import duties, all of which can be substantial."

Drake argues that the considerable investment required to localise software across a multi-lingual territory such as Europe does much to bump up costs.

Jussi Arovaara, EMEA & APAC business development manager for Corel, echoes Drake's points. He too attributes high sterling and euro pricing for Corel's products to "market conditions".

"Most development is done in the US, but all the localisation which takes place is carried out in the different markets in Europe. Our costs are very much tied to the local market and they are all higher than in the US," he said.

At Macromedia, EMEA communications manager Sarah Mowatt points out that US prices do not include the routine VAT sales tax that is added in most European currencies, as well as special promotional pricing campaigns.

Fair enough perhaps, but why are the software vendors so keen to stop European punters buying directly from the US?

"In theory, it's possible for a vendor to sell from the US to customers, regardless of where they are in the world, but in practice it's complicated," says Corel's Arovaara. "If you're just selling within the US, things are easy, but once you start selling from the US to the EU, you have to deal with tax laws and customs regulations. A lot of European credit card companies will also not cover users against fraud when used on US sites."

For Quark, the issue is a little less clear cut. Drake says European users "can buy" software from the US webstore, but that "not all versions of QuarkXPress will run on all operating systems. For example, the US English version will not run on an International English operating system."

Of course, there's nothing to stop a UK-based punter buying from a reseller in the US, but the ever more localised nature of software highlighted by Drake may stop even this being an option.

DIFFICULT MARKET CONDITIONS
While experts predict a gradual correction in the US and sterling exchange rate over the next year, in the short term the chasm in relative pricing is likely to remain an issue. Arovaara believes price differentiation throughout Europe may level off in the future, as the technology used to localise software becomes more advanced, but he remains less confident about global pricing.

"There will be differences between US, European and Asian pricing for some time because the market conditions in those territories are so different," he says.

Although it's hard to have much sympathy for the powerful and dominant software companies currently suffering at the expense of international exchange rates, the fact their positions and, more importantly, bottom lines are under fire goes some way to explain their eagerness to maximise revenue in as many different countries as possible.

A recent report from analyst group META predicted software prices across the board would decrease for the first time in over a decade during the next three to five years. This shift is being fuelled by the pressures of new application providers entering the market, the growing influence of open-source solutions, and increased use of offshore labour.

Add to this the billions of dollars of revenue being lost through piracy and it becomes clear that the software industry in general is definitely going to be keeping an eye on the pennies in the future, and is not going to let something as flimsy as currency fluctuations eat into its profits any time soon.