Camels and Rubber Duckies

Joel Spolsky’s article Camels and Rubber Duckies explores the surprisingly complex economics of software pricing.

Core Economic Principles

The fundamental challenge: “the more you charge, the fewer people will be willing to buy your software.” But maximizing profit isn’t simply about selling the most units—it requires finding the optimal price point.

The Segmentation Trap

Price discrimination (charging different customers different amounts) can theoretically capture more consumer surplus, but often backfires. Customers resent feeling cheated when they discover others paid less. Airlines perfected this strategy but “customers had no loyalty whatsoever” once low-cost competitors emerged.

Two Viable Models

Low-cost model ($10-$1,000): Sell to many customers without salespeople, generating grassroots advocacy
Premium model ($75,000+): Deploy sales teams to large corporations

The gap exists because crossing the $1,000 threshold requires expensive corporate approval processes that only justify sales team costs at higher prices.

The Real Problem

You can’t really discover the demand curve. Focus groups lie, and prices send psychological signals—cheaper often means lower quality to consumers.

My Takeaway

Cheap pricing functions as advertising investment, building customer relationships and word-of-mouth growth. As a founder, consider whether capturing maximum short-term revenue beats building long-term loyalty.