3 Ways Software Products are Different from Physical Products


First time creating a software product? If you are familiar with creating or selling physical products and are looking to get into the software product space, there are a few subtle differences that you should understand. These differences can make a substantial impact on your planning.

The majority of products that exist in the world today are tangible things. They are all around us from the food we eat, cars we drive, houses we live in, and trinkets we buy. As a species, we have been buying and selling physical products for thousands of years. We have internalized and accepted the economics at play (e.g. variable costs, mechanical failure, etc).

But what about software products? Have people internalized the subtle, but important differences?

Below are three differences that software products have from physical products.

1) They have high fixed costs and low variable costs.

Developing a software product requires a lot of upfront time and effort to design, develop, and test the product. In many cases to break even on the initial investment, the software product must be sold many times over. Because you need working software to provide value to the end-user, delivering the product to the first end-user is very expensive (even when using a lean development approach). Luckily for software products, the variable cost for the next sale can be driven to almost 0. Selling the next license of the software does not require manufacturing or assembly.

2) They don’t wear out, but do require maintenance.

Unlike physical products, software products do not break down after too much use. They do however, require maintenance when the components that they depend on are updated (e.g. operating systems or web browsers updates).

3) Additional value can easily be added after the first sale.

It’s common for all types of products to evolve and improve over time. It’s easy for software products to deliver that value with an application update as opposed to the next version of the physical product. Because value is easily added in the future, software products can more comfortably come to market sooner and more quickly integrate end-user feedback.

Considering these differences when planning your software product will help you more accurately estimate your product costs, timelines, and opportunities for future value-add.