Why Prices Drop at Launch: The Real Reason Behind First Generic Entry

Nov, 16 2025

When a new product hits the market, you’d expect it to be expensive. After all,研发 costs, marketing, and early production are pricey. But then, within months, the same product-or something nearly identical-drops to half the price. Why? It’s not a sale. It’s not a mistake. It’s first generic entry.

What Is First Generic Entry?

First generic entry happens when a competitor releases a product that does the same thing as an established one, but at a fraction of the cost. It’s not about copying the brand. It’s about matching the function. Think of it like this: you’ve been buying a $200 wireless earbud because it’s the only one that worked well. Then, a new brand shows up with nearly identical sound, battery life, and fit-for $80. That’s first generic entry.

It started in pharmaceuticals. When a drug’s patent expires, other companies can make the same medicine without paying royalties. The price crashes. The Congressional Budget Office found that after the first generic drug enters the market, prices drop an average of 76% within six months. But this isn’t just about pills anymore. It’s happening everywhere-software, electronics, even cloud services.

How It Works in Software

Enterprise software used to be locked down. Companies paid tens of thousands for licenses, annual maintenance, and forced upgrades. Oracle databases, SAP systems, Microsoft SQL Server-they came with high price tags and little room to negotiate.

Then came PostgreSQL, MySQL, and open-source alternatives. These weren’t “cheap knockoffs.” They were real tools, built by communities and companies that didn’t need to recoup billions in R&D. They matched 80-90% of the functionality of the big-name products. And they launched at 40-60% lower prices.

A 2022 Reddit thread from sysadmins showed a common pattern: teams switched from Oracle to PostgreSQL and cut licensing costs by 78%. Performance? Comparable. Support? Slower at first, but improved fast. Today, 67% of Fortune 500 companies have formal processes to evaluate these alternatives within three months of their launch.

Why Do Prices Drop So Fast?

It’s not magic. It’s math.

Incumbents used to control the market. No competition meant they could charge what they wanted. But when a first generic player enters, everything changes. Customers suddenly have a choice. And they’re not just looking for “good enough.” They’re looking for “good enough and cheaper.”

Here’s what happens:

• The new entrant undercuts the price by 40-60% to get attention.
• Customers test it. If it works, they switch.
• The original vendor loses market share fast-sometimes 25-35% in the first three months.
• To keep customers, they slash prices too.

This isn’t speculation. In the electronics industry, Sony’s XBR55X900C TV launched at $1,799 in 2015. Within a year, competitors entered with similar 4K TVs at $899. Sony dropped its price to match. The same thing happened with Apple’s iPod. Launched at $399. Now, you can buy a digital music player for under $50.

What Makes a First Generic Entry Successful?

Not every low-price alternative survives. The winners have three things in common:

1. Functionality that’s “good enough” - You don’t need 100% of the features. If the core job gets done, people switch. For example, PostgreSQL handles 90% of what Oracle does for enterprise apps.
2. Lower cost structure - They use open-source tools, cloud infrastructure, and offshore development. This cuts production costs by 25-40%.
3. Smart pricing models - Many offer free tiers, pay-as-you-go plans, or “land-and-expand” pricing. MongoDB’s Atlas, for example, gives away free database usage and charges only when you scale up.

A 2024 Flexera report showed a PostgreSQL-compatible cloud database launched with an 80% discount on core features. Within 12 months, it captured 22% of the market. Why? Because it let users try before they paid. That’s the secret: reduce risk for the buyer.

The Hidden Costs

It’s not all sunshine. Many early adopters hit snags:

• Integration headaches - Switching from a legacy system often requires data migration. 62% of companies hire outside help for this.
• Support delays - Big vendors offer 24/7 support. New entrants might offer 24/5. Response times are getting better, but they’re still 15% slower on average.
• Documentation gaps - Established vendors have polished manuals. Open-source tools rely on community forums. It takes time to fill those gaps.

According to TrustRadius, 28% of users reported integration issues in the first six months. But here’s the twist: 81% of those same users stuck with the new solution after nine months. Why? Because the savings outweighed the hassle.

Why This Is Only Getting Faster

Ten years ago, it took 18 months for a generic version to appear after a product launched. Today? It’s six months. Why?

• Cloud computing - You don’t need to build hardware. Just spin up a server.
• Open-source tools - Linux, Kubernetes, and PostgreSQL are free building blocks.
• Regulations - The EU’s Digital Markets Act now forces companies to make their systems interoperable. That cuts switching costs by 40-50%.

ARK Invest predicts open-source alternatives will take 35% of traditional enterprise software revenue by 2027. That’s not a guess. It’s a trajectory.

What This Means for You

If you’re a business buying software:

• Don’t assume the most expensive option is the best.
• Wait 6-9 months after a new product launches. Watch for the first generic alternatives.
• Test them. Many offer free trials or limited free tiers.
• Calculate total cost of ownership-not just license fees. Include setup, training, and support.

If you’re a vendor:

• Stop thinking in terms of license fees. Customers now expect value-based pricing.
• Adopt usage-based models. Microsoft cut Azure SQL pricing by 35% after competitors entered.
• Build community. Open-source isn’t a threat-it’s a distribution channel.

Final Thought: The Market Has Changed

The old rule-“you pay more for better quality”-is dead. Today, you pay less for nearly the same quality. First generic entry isn’t a threat to innovation. It’s a correction. It forces companies to stop overcharging and start delivering real value.

The next time you see a product launch at a high price, don’t buy it right away. Wait. Someone’s already building the cheaper version. And they’ll be ready sooner than you think.