`Razor-Blade' Marketing Reaches Software Industry

Article excerpt

SOFTWARE prices are coming down - not as fast as the cost of computer hardware, but slowly and selectively.

The most dramatic move comes from Intuit Corporation, makers of a popular home-finance program called Quicken.

The company is running television ads asking credit-card holders to try Quicken for $8. After 30 days, they're billed another $61.95 if they like the program. If they don't like it, they send in a registration card and keep the program for $8.

Intuit has aggressively marketed Quicken before, but never for $8. The move is part of a historic marketing shift within the software industry. Software analysts liken it to the marketing strategy of razor-blade companies: Sell the razor for a song and make the profits on razor-blade sales.

"You're going to see more of this razor-blade type of marketing," predicts Nancy McSharry, an analyst with International Data Corporation, a market research firm.

"The business strategy has to shift toward the installed base," adds Steven Frankel, director of research at Adams, Harkness & Hill Inc., a brokerage house.

The "installed base" is marketing lingo for a company's current customers. Instead of trying to generate huge revenues through sales to new users, many companies are counting on follow-up sales to current users.

Intuit is using one variant of this strategy. Besides software, the company sells computer checks and other peripherals. Industry observers say the company has decided to make its money off these peripherals, rather than the software itself.

Intuit officials declined to be interviewed for this article. A spokeswoman said the company did not want to give marketing information to competitors.

"It's a variant on all that direct-mail stuff. Processing the return {of the software} costs more money. You might as well let the people keep it," says Don Emery, president and chief executive officer of Reference Software. "We're looking at it ourselves" as a possible strategy. The company sells the leading grammar-checking software, called Grammatik.

Other software companies are taking a slightly different tack. They're selling upgraded versions of their software to current users.

"Upgrades can be a tremendously profitable business," says Rick Sherlund, vice president of investment research at C. J. Lawrence, Morgan Grenfell Inc.

Borland International Inc. set the trend a few years ago by offering attractively priced upgrades to current users, he says.

Even users of a competing program could move up to Borland's spreadsheet and database programs for $100 to $150. …