Hm. For truly niche software, I suppose I can see that, but for anything with more than even a few hundred customers, I don't think it'd last. Someone (like me, for example) would smell an opportunity and sell for less.
I suppose it's not a bad thing for you in the short term, but I'd caution against getting comfortable on the profit cushion, and reinvest in revenue sources that can't be taken away by the same opportunistic competitor.
I'm not sure how long 'it would last' would need to be for you to be convinced, but for me it has been going for about 6 years now since that conversation and it still works.
The interesting bit is that I was just as skeptical as you are (and probably even more so) and in the end decided that trying it was the easiest way to see if it was true or not.
The second time I was even more skeptical but then I figured 'in for a penny, in for a pound', just to be able to tell Richard that he was wrong the second time. But he wasn't.
It doesn't hurt to try though, and if it does work for you then it's free money, which is nothing to sneeze at.
Keep in mind that if your product costs you $2 to put out there per paying member and you manage to increase your sales price to $19.95 you've just gone from a 50% gross profit margin to 90%.
Understood, and I think I agree with you. I was thinking in terms of larger prices (i.e. $500 on up; I tend to work with custom and specialized software in my day job.).
I can almost guarantee you wouldn't build an entire product/website/SaaS just because you 'smell an opportunity' in a market 'with more than even a few hundred customers', would you?
How about pulling off what OXO did? They realized their products cut be copied and sold at a cheaper price. So they created their own competition. Just made a worse design, used cheaper materials, slapped on a new brand and put both lines on the same shelf.
That way you can market to two demographics and cover the market. Extra bonus is that you can use essentially the same underlying tech.
I suppose it's not a bad thing for you in the short term, but I'd caution against getting comfortable on the profit cushion, and reinvest in revenue sources that can't be taken away by the same opportunistic competitor.