David Cummings on Startups

Soft Drinks and Software

Written by

David Cummings

in

,

Comparing soft drinks and software seems like a dead end road. For me, I like looking at analog analogies whereby something from the physical world is compared to something in the digital world in order to look for patterns or themes. The soft drink industry provides several examples that are relevant to the software industry:

  • Once established as the standard in a market, monopoly pricing and power emerge (e.g. Coke for soft drinks, Microsoft for OS, and Google for search)
  • Distribution (shelf space for soft drinks and customer acquisition costs for software) become one of the main drivers for success
  • The standard soft drink flavors at restaurants are like the standard apps that come with the operating system — the casual person takes whatever comes is already there
  • There are a handful of mainstream products but mostly niche offerings

What am I missing? What are some other ways the soft drink market is like the software market?

Comments

4 responses to “Soft Drinks and Software”

  1. Stephen Reid Avatar
    Stephen Reid

    A policy change can matter a lot:
    ie : Coke Classic / New Coke : something like Google in China or companies reactions to DMCA type request.
    OR
    People reacting to high fructose corn syrup : green hosting, marketing honesty?

    Reply
    1. davidcummings Avatar
      davidcummings

      Thanks Stephen. Great examples!

      Reply
  2. Mike Wilt Avatar
    Mike Wilt

    Interesting analogy.

    My understanding of the soft drink industry and the Coke/Pepsi rivalry is that small cans and bottles of soda have the highest profit margins. A 12 oz. can or 16 oz. bottle might sell for $0.75-1.50 while a 2L bottle might sell for $1.00-1.75.

    A 2L bottle is typically more expensive, but the prices are in the same ball park. The 2L bottle contains much more soda but is inconvenient to take on the go. Consumers pay a premium for portability.

    How does this business strategy relate to software? A good example is the ringtone industry. A high quality mp3 sells for $0.99 while a ringtone version of the same song (lower quality; partial version) might sell for the same cost.

    This illustrates that consumers are willing to “pay again” for a song they already own for the convenience of a format that is portable and compatible with their phone’s ringer.

    Reply
    1. davidcummings Avatar
      davidcummings

      Thanks Mike. Awesome example of charging slightly different amounts for wildly different quantities.

      Reply

Leave a reply to Mike Wilt Cancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

More posts