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Well, I can answer your question in two ways: As a consumer: You're right, it stinks. You spend a ton of money to buy the full version of your favorite software, and within 12 months, it's out-dated by a newer version. If you're lucky, the company offers some discount for upgrading, but usually not enough.
The real question is, do you need the upgrade? If you can do everything you want with the current version, why change? Skip a year (or two) and save the cash. Eventually the company will stop supporting the version you own, which may force you to upgrade, but until then, if what you've got works, stick with it! As a software developer myself: It's hard to fault a company for releasing new software every year. For one thing, it costs a ton to develop a new program. So much that you may not be able to recoup the development costs with the first release. So, you lose money on the deal. To compensate, you add a few bells and whistles, fix a few bugs, and release version 2.0 a year later. Now you've spent a relatively low amount to develop that "upgraded" version, and you can still charge full price. In essence, you offset the initial development costs with two releases. That's one reason for the constant upgrade cycle.
Another is customer demand. You make this great program, your customers start using it, and after a few weeks you start getting the "I wish your program would do <xyz>" e-mails. After you get enough of them you say "well, seems like that's what my customers want, let's give it to them." So you do.
Lastly, you've got competitors. If ACME Software Corp is pumping out new versions of their software every 6 months, you need to keep up. ACME Artist 8.5 sounds a lot more impressive than MySoft 1.0. Consumers think "This is the 8th version of the ACME program -- it must be better than the first version of MySoft". If you're not keeping up, you get left behind. (See also AOL 5, 6, 7, 8 vs. MSN 5, 6, 7, 8...)
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