If you're not part of the WordPress community, I promise this post won't just be WordPress-centric.
So let's review some of the backstory – quickly.
The Backstory
I'm going to keep this really short, so we can get to the good stuff.
- A software company offered products to its customers – with one version having “lifetime” licenses (support and upgrades for the life of the product).
- That company announced a change to their future pricing, but also a retroactive change to the “lifetime” licenses to limit it to 2 years.
- Many people were frustrated with the new pricing. But what angered some folks in big ways was the retroactive change – calling a lifetime 2 years.
- WooThemes initially defended their decision and then backed up a bit and offered lifetime licensees the opportunity to opt-into the legacy agreement.
- Two web sites have since sprung up – wpavengers and wpgreed – taking shots at WooThemes.
My Initial Reaction
When I read the news of the changes, I wasn't as angry as others. I'd written an earlier post about the fact that most plugins in our community were underpriced. Because my affiliate links were in the post, some people assumed the logic in the article was invalid. Others assumed I was suggesting all prices should go up.
But my main point was simple – for developers who were licensing these products to earn their own living, we should be investing more in our tools. If we do, we can ensure that those companies will be around for a long time.
So my perspective on the WooThemes decision to raise prices not only didn't shock me, I welcomed it. In fact, I wrote a post about it on Torque, and another on my own site about pricing.
Money Helps
The response was widespread as people were really angry. The legitimate frustration came from people who had just been offered a chance to purchase lifetime licenses in July and had taken it.
If I had been WooThemes, I would have immediately, before posting the news, sent them all money back – the difference between the next lower license and the lifetime one.
Money in an account often softens the blow of any change.
But here's where everyone else, even those outside of the WordPress community, can begin learning some lessons from the entire experience.
1. Educate your market
When you're talking about software licensing and changing the terms, conditions, or pricing, your first priority needs to be education.
In this case, the community reacted in two different ways. Those of us that could do the math and forecast where things were headed weren't as frustrated as those who were much more focused on their own challenges. Two different reactions based on two different levels of knowledge about pricing and licensing.
Some people thought Woo was saying they were going under. That's not how I read it. I read it as them realizing that their individual transactions weren't profitable. So it becomes easy to see how over time, at this rate of growth, their margins would shrink to virtually nothing.
But that means you have to educate a market about the need to be profitable in every transaction. A ponzi scheme isn't helpful. You can't hope that growth will cover future costs.
If you're selling anything with a lifetime license, seriously sit down and do the math. Because if you're assuming that you'll never have support tickets, you don't know the software industry.
And here's the gotcha. Early adopters in the software space are self-starters. They don't submit tickets like others. But as you get popular, you'll settle towards the mean, and the mean is not only non-technical – they can be mean! (see what I did there?)
WooThemes didn't walk thru the entire model, and I'm not saying they should have put out specific numbers. But with the goal of education, I would have charted out how support costs were growing, over time, and highlighted the percentage of each purchase that was going towards it's own future support.
2. Predict the angry response and act proactively
When we changed our pricing in an earlier startup, we knew people were going to be unhappy – at least some folks. So we started talking about it early and often. This way it wasn't a surprise to anyone.
In reading the announcement, you can clearly see that some people would be angry about the price increase. Addressing that might mean doing something like they did with the club – telling you that if you were already a paying subscriber, nothing would change for you.
But others were mad about a recent sale and the encouragement they were given to buy before prices went up. Of course people made investments – hoping they'd pay off down the road. Proactively thinking about them would have taken me down the partial refund road.
Either way, if you're going to change your licensing, let people know early, and embed some responses to predictable frustrations into the announcement. It says you were thinking about and could see where people might be frustrated.
3. Articulate the real goal – WordPress Sustainability
As I mentioned, two sites have already popped up. The first thing you should know about them is their run by anonymous people. If you are going to step up and complain, attach your name. If not, you lose the right to earn any respect from me.
But the second thing you could see is that these sites are complaining because they've misunderstood the goal. The goal isn't for WooThemes, or any company, to get more profits. The goal is to ensure that WooThemes, or any company like it, is around 10 years from now.
To be around, these companies have to have business models that make sense. I've said it before, without taking a pot shot at anyone – the WordPress community, from a business perspective is young. The oldest companies are 5 or 6 years old. In many companies, it's run by someone who is running their first company. Ever.
If you're going to change your license, you need to be really clear that the goal isn't more money. It's more time. You're looking to be around longer.
Again, I think the guys at Woo figured out their defensiveness hurt them, because their first communication made it sound like they just wanted more money (because their own customers were making more money). It's not what they meant, but it's what came out.
4. Nothing is ever set in stone
I know some people took a moment to highlight how unlike WooThemes they were. But to everyone in the community, I'd say this: if you're not currently pricing in a way that makes sure every single transaction is profitable on its own, you're going to have to make your own change soon enough.
You may have other diversified income streams, but eventually, you will feel the burden of transactions that aren't sustainable, and you'll have to make a change. But that's also the good news. Change is possible. If you communicate effectively, you can navigate it better than we've seen.
But the point is, you can still do it. And that's great news.