August 27, 2020

The Software Inflation Rate in 2020: 2.2%

Software got more expensive less fast than in previous years—though still double the inflation rate.

by @maguay

Founding editor @capiche. Writer. Amateur photographer. Information architect. Older work: @zapier, @AppStorm. Personal blog: @techinch.
maguay's avatar

It almost felt like common knowledge that software was increasingly expensive. Yet was it, really? Had the move from boxed software and one-time licenses to subscriptions and SaaS had actually resulted in higher prices, we wondered?

So last year we picked 100 popular business software, dug through blog posts and the invaluable Wayback Machine, checked each year’s pricing for the decade from 2009 to 2019, and calculated the software inflation rate.

Our hunch was correct. Software had gotten 63% more expensive over a decade, or around 5% a year, vastly outpacing the inflation rate.

Then came a global pandemic, paired with a boom in tech stocks. Perhaps it wasn’t the time to raise prices. Perhaps the price was already right.

This year, your software budget has a bit more breathing room: Software pricing only went up 2.2% in 2020. 10% of software got more expensive this year, counterbalanced by the 8% that lowered prices.

The dramatic price changes from the switch to SaaS have stabilized. If anything, your company may pay less for software this year, as bundles are the new norm again, giving you everything in one package so you need to buy fewer software products.

When business models change.

In 2009, the App Store was a year old, an early part of the switch to subscription-powered cross-platform software. Amazon AWS—the service that’d power much of the SaaS boom—was 3 years old. Salesforce, one of the original web apps, had proved for nearly a decade that people would subscribe to online software.

So the world went SaaS, right around the end of the 21st century’s first decade. Wufoo launched in 2006, Todoist in 2007, Dropbox in 2008. Slack would come out 5 years later. Countless other SaaS applications would follow, as services like Stripe, Twilio, and new AWS offerings increasingly made it easy to launch a SaaS business. Adobe and Microsoft followed in 2011, switching their bundled software to subscriptions and cementing SaaS as the default business software model.

And at first, it was a win. SaaS brought us unique, new services like Dropbox, Slack, Airtable, and more, apps that would be hard to imagine without subscriptions. SaaS also made software far more accessible; Office went from $220 upfront to $9.99/month, while buying all of Adobe’s software in bundle went from $2,599 to $52.99/month.

Some software even got dramatically cheaper over the decade, in almost Moore’s law for software. File storage pricing stayed the same while giving you dramatically more. $9.99/month got you 50GB of Dropbox storage in 2009, while $11.99/month got you 2TB of storage—40x more—a decade later. Video calls got commoditized, as free services like FaceTime, Google Meet, and Zoom filled the market. GoToMeeting had to follow—it costs less than a third of what it did in 2019, for 10x as many meeting attendees. Those and others in commoditized, strongly competitive categories—competing often with tools bundled with Office Suites and computing platforms—had to deliver more for less.

But. SaaS made you keep paying. You increasingly had to commit to at least a year-long subscription. When the price changed, you were stuck. And the plethora of new business software meant you had an increasing number of software bills to pay.

It’s not like boxed software kept the same price forever either. Adobe added $50 to the price of Creative Suite every few upgrades, while boxed Quickbooks pricing steadily crept upwards each year. But when software prices went up an average of 63% over the decade from 2009 to 2019, it starts to add up.

This year’s not as bad as the average. 2020 saw a software inflation rate of 2.2%—double the overall US inflation rate, but far lower than previous years’ price increases.

What changed in 2020’s software pricing?

2020 software inflation graph

There’s a good chance your software bills aren’t actually higher this year, as only 10% of the software we tracked got more expensive.

If pricing did go up, though, on average it went up 47% since its last price change (which, on average, came 4 years ago). Asana, Teamwork Projects, and PivotalTracker each went up around 10%—so Asana now costs a dollar more per user each month. Others saw a 30-50% price bump. PieSync went up the most, with its price nearly tripling since its acquisition by HubSpot.

You had nearly as good of odds of your software getting cheaper this year, as 8% of products saw their price reduced an average of 32%. Notion made their personal plans free, as did GitHub along with reducing all their plans’ prices. AWS took 1-12% off their services. GoToMeeting costs less than half what it did last year. Drip and LucidChart had raised their prices in 2019, then brought them back down this year.

But the sticker price wasn’t the only way software pricing changed this year.

Some products de facto became more expensive, as features were cut or annual became required. SurveyMonkey’s base plan, most notably, nearly tripled in price—unless you used an annual plan, where the price stayed the same as last year. Unbounce got $10/month cheaper—but instead of unlimited pageviews, the core plan only lets 20,000 people view your sites each month. Others—including Zapier, Help Scout, and Keap Infusionsoft—kept the same price but include fewer tasks, mailboxes, and contacts, respectively.

Other software got cheaper in the same way. WebEx and BigCartel doubled the contacts and listings you can have, respectively, for the same price. Dropbox threw in HelloSign features for no extra cost, after acquiring them last year. HubSpot kept list prices the same, but now charges 20% less for additional contacts.

Explore the full data on Google Sheets.

What’s next for software pricing?

Software pricing tends to go up every 5 years, on average—with some changing their price every year or two, others keeping the same pricing for nearly a decade. If a program’s price hasn’t changed in a few years, it might be in line for an update over the next year.

Strong competition can change that, though. File storage apps now typically all offer 2TB of storage at around the same price; if one increases that or goes unlimited, that may start being the new default. Other app categories that are often bundled in office suites—including video calls, team chat, and notes apps—may similarly be pressured to lower prices due to competition.

Beyond that, here are the pricing trends to watch going into 2021:

Bundles are getting bigger. Google and Microsoft, especially, continue to add features to their software bundles, most notably team chat tools, without raising prices. Dropbox has folded their HelloSign acquisition into their core product, so you get more for your subscription; Microsoft acquired GitHub, then sharply cut their prices this year. Smaller acquisitions may not see the same benefits, though; Formstack’s WebMerge has kept similar pricing, while HubSpot’s Piesync’s price has nearly tripled since acquisition.

Free for individuals, paid for teams. It’s still a good time to use software as an individual, as software increasingly is free for one-person plans, charging for teams after the software gets adopted as people bring their own software to work. That’s Notion and GitHub’s new pricing strategy, after originally charging individuals and teams alike. Atlasssian did something similar this year, making their 10-user plan free after years of charging for it.

In-App purchases for work. Another common trend is charging more for extra features. Basecamp’s new email app, Hey, offered shorter email addresses for an additional price. Xero now has add-ons for projects and expenses, features previously reserved for top plans. Gusto added HR features, and a new pricing tier you can upgrade to get them. TalentLMS started selling a library of courses as a companion to the courses your team made internally with their software. Everything from Salesforce and WordPress to even Office and Creative Cloud sells add-ons from 3rd parties to add features to build an ecosystem. That’s one way software can charge more, while letting users feel like they’re paying for something new.

More expensive software from the start. Raising prices is hard; lowering is easy. Software is, perhaps, learning this lesson this year, as new SaaS products seem to start at higher initial prices than before. Roam Research, a popular research and notes tool, launched paid plans at $15/month (or $500 for 5 years), far higher than apps like Notion and Evernote. Basecamp’s Hey costs $99/year, as much as a full G Suite account albeit with only email, and Superhuman charges a full $30/month. Perhaps they’ll still raise prices in the future—but perhaps, they’ve bought themselves the pricing headroom to keep prices the same for years to come.

Learn more about software pricing from Capiche.

Further reading and notes.

Our Methodology: We researched similar plans from a hundred popular business software products, chosen in 2019 based on top rankings in popular app directory sites. We then checked how much each cost for a single user with the app’s primary feature set in 2009 or the next earliest year where pricing was available on the Wayback Machine, and how much the price changed each year until now for plans with similar features. Prices current as of publication.

Explore the data: For more info, see Capiche’s original software inflation rate article from 2019, or explore the software inflation data from 2009-2020 in Google Sheets.

Notes: This year’s software inflation rate data required a few changes:

  • SurveyMonkey’s pricing was switched to annual, from month-by-month as used in 2019, as annual plans are essentially required now (monthly pricing went up nearly 3x this year—from $37 to $99/month—and is only available on one plan).
  • Buffer made last year’s mid-priced plan their top plan, so we updated each year’s price listing to match this year's plan’s features.
  • Mavenlink removed their pricing this year, so we don’t have data to know if their software costs more or less than in previous years.

Image Credit: Header photo by Nick Fewings via Unsplash.

FORMAT WITH MARKDOWN; DRAG AND DROP IMAGES
abouelatta_ali's avatar
@abouelatta_ali (replying to maguay )
29d

It would be interesting to see, how often companies raise their prices and if that includes the introduction of new packages/pricing model or just a simple % increase.

1 point
maguay's avatar
@maguay (replying to @abouelatta_ali )
29d

@abouelatta_ali Good call!

So, in the research I didn't save every plan for each year—so I don't have the full data on how often companies introduced new packages and pricing models, unfortunately.

On the question of how often companies updated their pricing though, from the hundred products tracked for this article:

The average software changed their pricing 3.15 times in 11 years, or around once every three and a half years. (The mode was also 3 times).

11% never changed their price; 26% only changed their price once.

Some products change their pricing nearly ever year; 3% changed 7 times, 1% six times, and 16% changed it 5 times.

In any given year, around 24% of software had a price change.

2 points
Pleeco's avatar
@Pleeco (replying to maguay )
a month ago

@maguay insightful data! Great essay (as always).
I put together a quick app to compare the pricing by category (https://public.kelp.app/id/_gRGKGrwTLu.Fy2gwQOPpDA).
Although there gaps in data, the pattern across many categories is obvious. Many apps raised the price around 2013-2015, then some adjusted back in 2020.

1 point
maguay's avatar
@maguay (replying to @Pleeco )
a month ago

Thanks, that’s a great addition to the essay.

The gaps in the data are where apps didn’t change their pricing during a year—or, for software where the earliest years don’t show pricing, the product launched paid plans after 2009. So that should still be accurate.

And you’re absolutely right on the adjustment—you see it both in that time interval, and in apps that raised prices in 2019 then lowered them this year (sometimes as an outright discount, others as a cheaper plan that also includes fewer features). Interesting seeing especially products in newer categories trying to find the price floor and ceiling for their products.

1 point
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