This entire argument is flawed. If your marginals costs are so low, and you can charge $49+ (whatever) for what is essentially air, that means more money in your pocket. In fact, I'd argue that its much better if your marginal costs continue to get lower as you add more users! Why do you think Microsoft is such a cash cow?
I've seen way to many web entrepreneurs think of their products' price in relation to costs and and I just don't get it. Try to keep fixed costs low, focus on how much revenue you can extract from your customers, and drive marginal costs as close to zero as you can.
I think this is a point too often forgotten by web entrepreneurs. A product has no intrinsic value - its value is in the eye of the user. This is also to say that every single user has a different value for how much they are willing to pay for your product (which may in fact be $0). Simply because something costs nearly nothing to make, doesn't mean you should sell it for nearly nothing.
> Simply because something costs nearly nothing to make, doesn't mean you should sell it for nearly nothing.
Software costs a lot to make, what is low is the marginal cost: the cost to create one extra copy. The reason costs tend to zero is: if the marginal cost is zero, it's very easy to get into a price war. Maybe you won't sell it for $49, but your competitor might be willing to sell it for $29.
> If your marginals costs are so low, and you can charge $49+ (whatever) for what is essentially air, that means more money in your pocket.
If it's that profitable though, competitors will show up. Indeed, there are plenty of 37signals competitors. What really differentiates 37signals is how very visible they are (their oldest, most popular product is their blog), which makes it easy for them to get enough people to sign up to turn a tidy profit. That is their barrier to entry.
> Why do you think Microsoft is such a cash cow?
Because they have a monopoly. Operating systems and office software have a lot stronger network externalities than project management software does.
I've seen way to many web entrepreneurs think of their products' price in relation to costs and and I just don't get it. Try to keep fixed costs low, focus on how much revenue you can extract from your customers, and drive marginal costs as close to zero as you can.