But before I start, I should say that, despite the subject matter of most of the other posts on this blog, the Independent Developer scene is something that matters to me, as it should to everyone who enjoys using well-designed - no: lovingly crafted - software. Double standards? Perhaps, but I do purchase licences for the software I use regularly and I encourage other people to do the same. Hey, I'm preaching to the choir, aren't I? So on with the economics.
Okay. Let's start by making a few assumptions.
Firstly, Gus Mueller states that he was offered a fixed $5,000 to take part in MacHeist (he mentions the figure in the comments). Let's assume that the same was offered to - and excepted by - each of the developers who took part.
While this amount will still be liable to corporation tax (or the equivalent), the developers won't have to pay credit card processing fees or any other associated "costs of sales". (We'll come to support costs later.) So this payment can be looked at as "gross profit".
In the table below I've listed the applications being offered in the bundle. Note that Pangea offer a choice of one of the four games listed, and that although Newsfire and TextMate will only become available once a certain sales total has been reached, a copy of each will be given to everyone who has previously bought a bundle.
| Price | “Gross Profit” | Break Even (units) | |||
|---|---|---|---|---|---|
| Delicious Library | $40.00 | $36.00 | 139 | ||
| FotoMagico | $79.00 | $71.10 | 70 | ||
| ShapeShifter | $20.00 | $18.00 | 278 | ||
| DevonThink Personal | $39.95 | $35.96 | 139 | ||
| Disco | $14.95 | $13.46 | 372 | ||
| Rapid Weaver | $39.95 | $35.96 | 139 | ||
| iClip | $19.95 [1] | $17.96 | 278 | ||
| Pangea Games | Pangea Arcade | $19.95 | $17.96 | 278 | |
| Enigmo 2 | $29.95 | $26.96 | 185 | ||
| Nanosaur 2 | $24.95 | $22.46 | 223 | ||
| Bugdom 2 | $34.95 | $31.46 | 159 | ||
| Newsfire | $18.99 | $17.09 | 293 | ||
| TextMate | $50.00 [2] | $45.00 | 111 | ||
[1] iClip 3 costs $19.95 with a free upgrade to iClip 4 when it comes out, whereupon it will cost $29.
[2] TextMate actually costs €39. At the current €1 = $1.32 this is $51.75.
The figures in the "Gross Profit" column are 90% of the sales prices. 10% seems a fare figure for card processing plus a share of the costs of bandwidth. I haven't purchased one of the bundles but it looks like anyone who does will have to download the applications from the developers' own sites.
The "Break Even" column is the $5,000 payment divided by the "Gross Profit" figure. It's meant to give a rough idea of the number of regular purchases - allowing for what the developer saves off of the cost of sales - the $5,000 would normally have bought. It's a really basic back-of-an-envelope style calculation, but something of an eye-opener, I think. The $5,000 represents the (estimated) gross profit on between 70 (FotoMagico) and 372 (Disco) regular sales.
As of the time I'm writing this (9pm GMT on Tuesday the 12th), the counter on the MacHeist site registers just short of 2,700 sales, with 5 days and 8 hours left to run.
I have no idea how many copies of these applications their developers would have expected to sell during a regular week, but it could be that, if it is usually significantly less than the figures shown here, they were betting on the promotion generating fewer sales than this, allowing them to bank the difference between the $5,000 and the value of the software actually sold. If this was what they were thinking then they will have got a nasty shock.
In a similar vein, the gamble taken by the Newsfire and TextMate developers is (at least mathematically) very interesting, mirroring as it does in some ways the kind of bet you see played-out in the financial markets. They are gambling that sales don't reach the $50,000 (Newsfire) or $100,000 (TextMate) levels which would mean their having to distribute licences, instead allowing them to keep all of their $5,000. Pat Nakajima calculated that these roughly approximate 4,082 and 8,164 bundles, or the equivalent of $69,761.38 and $367,380.00 in gross profit, respectively. Ouch. That's some gamble.
Of course, when we talk about "the equivalent of ... gross profit" we're assuming that the person buying the bundle would otherwise have purchased the "full-price" application - that the developer is in effect losing a sale each time. What if we instead assume that each purchaser is only really interested in two of the ten applications? and therefore will do nothing else with the other eight? Even with the 2,700 sales we've had so far, that still gives each application 540 new users. You could view this as having offered a 50% discount on each copy sold, but that 50% figure is dropping rapidly.
Umm... this post has grown way out of hand, so I think I'll call it a night there. There's a lot I haven't covered which I should have (including the deal from MacHeist's point of view), so if there's any interest I may revisit the subject again.
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