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

Ever wonder why a product suddenly gets half off the moment a new competitor shows up? It’s not a sale. It’s not a mistake. It’s first generic entry - and it’s changing how every industry sets prices.

When a company releases the first real alternative to a popular product - whether it’s a drug, a database, or a smart TV - prices don’t just dip. They collapse. And the reason isn’t about being ‘better.’ It’s about being available.

What Exactly Is First Generic Entry?

First generic entry happens when a competitor launches a product that does the same thing as an established one - but at a fraction of the cost. It’s not copying. It’s competing with the same function, same performance, but without the brand premium.

In pharma, this is well-known. When a patent expires on a drug like Lipitor, generic versions hit the market within months. Prices drop 76% on average. But it’s not just drugs. The same thing happens in software, electronics, and cloud services.

Take PostgreSQL. For years, businesses paid thousands per year just to use Oracle’s database. Then PostgreSQL - open-source, free, and just as reliable - became a real option. Companies didn’t need to upgrade hardware. They didn’t need to retrain staff. They just switched. And the price? One sysadmin on Reddit said they cut licensing costs by 78% overnight.

Why Do Prices Crash So Fast?

It’s simple: scarcity is gone.

When only one company sells a product, they control the price. You either pay or go without. But the moment a second company enters - even if they’re unknown - the market shifts. Customers now have a choice. And choice kills monopoly pricing.

Here’s what happens step by step:

1. A company dominates a market with high prices - say, $10,000/year for a software license.
2. A new player launches a version that works just as well - but costs $3,000.
3. Customers test it. They find it’s 85% as good. No major trade-offs.
4. They switch. The original vendor loses 20% of its customers in three months.
5. The vendor lowers their price to $6,000 to stay competitive.
6. Other competitors jump in. Prices keep falling.

It’s not about being cheaper to make. It’s about being cheaper to buy.

The Numbers Don’t Lie

The data shows this isn’t theory - it’s a pattern.

For enterprise software:

• First generic alternatives launch at 40-60% below the incumbent’s price.
• Within 18 months, the original vendor drops their license fees by 30-45%.
• Customers using these alternatives save 35-50% on total cost of ownership in the first year.

In consumer electronics:

• Sony’s XBR55X900C TV launched at $1,799 in 2015.
• Within 12 months, competitors entered. Price dropped to $899.
• Today, similar 4K TVs sell for under $500.

And in cloud services? Microsoft lowered Azure SQL pricing by 35% within six months of seeing PostgreSQL-based alternatives gain traction. Why? Because customers started asking: "Why am I paying four times more for the same thing?"

How Do Generic Entrants Do It?

They don’t have to reinvent the wheel. They just need to rebuild it cheaper.

Here’s how:

• No R&D costs - they copy what already works.
• No brand marketing - they rely on word-of-mouth and reviews.
• No legacy overhead - no outdated sales teams or expensive offices.
• Open-source or cloud-native - they use Linux, Apache, Kubernetes - all free tools.
• Remote teams - they hire developers in countries where labor costs are 60% lower.

One company we tracked replaced a $12,000/year on-premise CRM with a $2,400 SaaS version built on open-source code. The interface was nearly identical. The support? Slower at first - but improved within six months.

What’s the Catch?

It’s not all perfect. People assume free means worse. And sometimes, it is.

Early adopters of generic alternatives often report:

• Integration headaches - especially with old systems.
• Less polished documentation.
• Slower customer support response times (though this gap is shrinking fast).
• Need for more internal configuration - 20-30% extra setup time on average.

But here’s the twist: 81% of companies stick with the cheaper option after the first year. Why? Because the savings outweigh the hassle.

One IT manager in Sydney told us: "We spent 40 hours training our team. But we saved $80,000 in year one. We didn’t look back."

Why This Is Getting Faster

Five years ago, it took 18 months for a competitor to launch a viable alternative after a patent expired.

Today? It takes six months.

Why? Three reasons:

1. Cloud tools - building software is 60-70% easier now. You don’t need servers, licenses, or hardware.
2. Open-source libraries - everything from authentication to databases is free and ready to use.
3. Regulations - the EU’s Digital Markets Act now forces companies to make their systems easier to switch from. That cuts switching costs by 40-50%.

By 2027, open-source alternatives are expected to capture 35% of revenue currently going to traditional software vendors. That’s not a prediction - it’s a trajectory.

What This Means for You

If you’re a business buying software:

• Wait 6-12 months after a new product launches. Don’t rush to the "leader."
• Test the cheapest option first. If it does 80% of what you need - it’s often enough.
• Ask for total cost of ownership - not just license fees.

If you’re a vendor:

• Stop relying on brand loyalty. Customers don’t care anymore.
• Shift to usage-based pricing. Charge by how much they use, not by how many seats they have.
• Offer a free tier. MongoDB did it. PostgreSQL did it. Now it’s standard.

The game has changed. The old model - charge a lot, protect it with patents, hope customers don’t notice - is dead.

The new model? Offer value. Be transparent. And price so low that even your competitors can’t ignore you.