Shareware Beach

So how did I find out about the Paris Hilton article?

Earlier this month I received an email from an analyst at a major venture capital firm specializing in software companies, including developer tool companies. He mentioned the article as the way he learned about our company. Funny how stories travel the world and connect people.

Last November at the European Software Conference, there was a panel discussion about venture capital and other forms of financing. Generally, venture capitalists don’t invest in shareware or micro-ISV companies. I learned a new term that VCs apparently use for such companies: lifestyle companies. Here’s one definition I found:

A lifestyle company is one that supports a good living for you, but isn’t designed for an exit (i.e. selling to another company, IPO, etc.) Lifestyle companies are typically smaller, built around the expertise and skill set of the individual founder(s).

That sounds exactly like Just Great Software. But I’m intrigued by the word lifestyle. It means more than just making a good living. It means leading the life you want to lead. According to one dictionary:

A manner of living that reflects the person’s values and attitudes

When you work in a lifestyle company, quality of life, however you define it, comes above all else. In fact, you can’t really work for a lifestyle company. You are the company, whether that’s by yourself or with a group of people as a partnership.

It’s certainly possible for a lifestyle company to bring in a lot of money. In fact, if you do what you love, you’ll put your heart in it. Customers will notice and spread the word.

But as the business isn’t about the money, it’s hard for a VC to make a business case. For a VC, the exit strategy and associated payday is the primary concern. But when you’re enjoying life, an exit strategy is the least of your concerns.

Late last year, SWREG, the e-commerce provider that has been powering the Just Great Software ordering pages announced with quite a bit of fanfare they’d be lowering their rates to $1 + 2.9% per transaction. That is significantly lower than all of their direct competitors’ rates, including the ones owned by Digital River (as is SWREG).

Of course, there had to be a catch with such low rates. The new low rates require acceptance of a new contract that allows SWREG to market various offers to people purchasing software via SWREG. Simply put: they want to sell more stuff to your customers if you’re on the 2.9% plan in return for the low rates. There’s nothing wrong in principle with such a deal. However, I do not want to position Just Great Software as a brand where people end up spending more than they originally intended. So, like many others, I opted not to sign the contract and to keep the orginal higher rates. Just Great Software enjoys a grandfathered $1 + 4% rate, which is still very competitive. SWREG still signs up new clients at $1 + 6% on a contract without the extra marketing requirements. So I figured all was well.

Last month, SWREG finally got around to implementing these add-on sales. It appears on the order confirmation page, which confirms the software was purchased and the order is complete. Close your browser and go to bed. Can you spot the sales offer?

If you’re wondering why the Just Great Software ordering pages look totally different–I’ll get to that. Our customers won’t see any of this. The screen shots show Joe Mercier’s dpopup.com ordering pages, kindly provided by Sue Pichotta of icons-icons.com. The offer is only shown to US and Canadian customers.

The sales offer is indeed the big “Continue” button with some fine print above it. While this technically looks like a sales offer, most people don’t read carefully, and only see the Continue button. Everybody wants their software yesterday. This isn’t pizza. Delivery in 15 minutes doesn’t cut it any more. I speak from experience. So the reflex is to click the Continue button, and the unsuspecting customer has agreed to be pitched some kind of offer. Scrolling down the page, there’s a big Yes button, and a small “No thanks” link. Clicking the big Yes button is all it takes to get some subscription billed monthly to the credit card you just used to make your software purchase. No need to enter the card number again. If you click the “no thanks” link, you get more sales offers.

I have no problems with an e-commerce provider politely pitching useful offers after completing a sale, such as offers for software from other clients that can be used in combination with ours. But instead, SWREG is using smoke-and-mirrors to trick people into signing up for a subscription of dubious value. Frankly, I can’t see why any software publishers would put something like that on their order form to save 3.1% on their e-commerce rates. Most people don’t realize that the company behind the order process is not the company that publishes the software. They’ll think the offer comes from the software publisher. Word-of-mouth is a major source of promotion (read: income) for many small software companies. Don’t kill it with sleazy offers to pinch pennies. Positive word of mouth spreads much faster than 3.1%. You don’t want to even think about negative word of mouth.

I definitely recommend all software developers to stay away from the $1 + 2.9% plan. The standard $1 + 6% is plenty competitive given the support and features you get. No complaints from me there. If you want rock bottom rates, and don’t mind to put in some extra work to integrate the sales process into your web site, there’s always PayPal or your own merchant account.

The real problem with this episode is that SWREG had the luminous idea of also putting the offer on the order pages of customers that did not accept the new contract. Sure, the old contract does not forbid SWREG from doing this. However, since SWREG’s clients clearly had a choice between a contract with add-on sales requirements, and one without such requirements, any good lawyer can argue that the contract that says nothing about add-on sales implies that there will be no add-on sales. Otherwise, there’s no difference between the contracts, and no point in paying a higher rate. This is breach of contract. Not to mention trust.

SWREG have backpedaled on this after widespread uproar among their clients. Only clients on the $1 + 2.9% will get the offers, as should have been the case in the first place. Not even the slightest hint of remorse or apology, though. (You know, it’s incredibly easy to apologize on the internet. Just hire a copywriter to write something nice and fully. You don’t need to mean a word of it. Much harder to be nice and fluffy when the victim is staring you in the eyes.)

Unfortunately, paying a higher rate may not be a long-term solution. It will depend on the quantity and style of the stuff SWREG is going to pitch, and how many of their clients ignore my advice and stay on the $1 + 2.9% plan. The thing is that the $1 + 6% ordering pages look exactly the same, except for the last page. If people start to recognize SWREG’s ordering pages as the kind where you get suckered into buying stuff you don’t want, that could significantly increase shopping cart abandonment.

So why aren’t the Just Great Software ordering pages affected by this? What makes SWREG unique among e-commerce providers is a feature they call “advanced level”. Simply put, this system allows the software publisher to create their own ordering pages on their own server, calling out to SWREG’s server in the background. That’s what we do. When you buy from us, your browser never leaves the jgsoft.com domain, but your credit card is still charged by SWREG. The only other company that offers such a system without needing your own merchant account is PayPal, but in the US and the UK only.

Since the order pages are on our own server, we have full control over them. Nobody can insert anything in any way. (Note that if you’re on the $1 + 2.9% plan, the contract does require you to add the marketing stuff by yourself. If you don’t, I suppose they’ll bump you up to the higher rates.) We’ve never had any serious problems with SWREG’s services, and support is generally quite prompt. It has the features we need, so I’m happy to continue using them and even recommend them, but only for their unique “advanced level” feature.

So why don’t I apply for a merchant account? Well, I really don’t want to walk into a bank and say “credit card”, “real time”, “internet” and “multiple currencies” in one sentence. The poor girl behind the counter would have a heart attack. In fact, she didn’t even know that her bank issues credit cards to corporations. You know, your garden variety corporate Visa. Two whole bank branches argued against it until they called the head office. Pieces of eight, anyone?

Many people feel that Digital River is fast becoming a monopoly. Yes, they have bought up a lot of the e-commerce providers specifically serving software developers. But there’s plenty of competition outside that niche. I doubt Digital River will be big enough any time soon to buy up a few players like eBay (PayPal) or Google.

This morning when I logged onto the SWREG control panel, I saw a big banner announcing a rate reduction. The blurb made no mistake about who DR is trying to compete with:

• SWREG has more international capability and customization than Paypal
• More Revenue Share opportunities than Google Checkout
• Increased Payment Options and flexibility verses our competitors within the industry!

However, as I immediately suspected, there’s a catch: to get the new rate, vendors have to agree to a new contract. Sticky points are that the vendor has to enable Digital River to sell extended download and backup services, and any kind of up-selling and cross-selling at Digital River’s sole discretion.

I wouldn’t care about this out all if SWREG was just another reseller. I’m all in favor of up-selling, cross-selling and just plain selling, to paraphrase Al Harberg. Resellers can monetize then customers as they like. If I get a cut, that’s even better. In fact, when Digital River offered a similar rate reduction with strings attached for RegNow, I had no qualms about it.

But SWREG is different. I’m using their “Advanced Level” to power the ordering pages on my own site, allowing customers to buy “directly from us”. I will not let my e-commerce provider dictate how I should sell my software on my own site. It defeats the purpose of designing my own ordering system entirely. And that would take away the sole reason I snitched to SWREG. If I’m going to link to their ordering pages, there’s or wide range of e-commerce providers I could work with.

Fortunately, if I don’t accept the new contract, I can keep the old one at the old rates. So that’s what I’ll do. Hopefully Digital River realizes they have a unique and powerful system with SWREG’s Advanced Level. I’d like them to improve the system and cater to the wishes of its clients, rather than lumping it together with the rest of SWREG. Or at least until Pay Pal rolls out it’s “Website Payments Pro” system worldwide, so I can vote with my virtual feet if I have to.

One of the worlds best-known shareware products, WinZip, has been acquired by a venture capital company. I hope Nico Mak & Co. got a lot of money for their baby.

However, like Tom Warfield, I’m not so sure that Vector Capital’s plans will go smoothly. WinZip has been true shareware since it was first released, relying entirely on the honor system to collect money. As most shareware authors know, that system doesn’t work very well in a world where most users have no idea about the effort takes to produce even a relatively simple tool like WinZip.

Tom points out that this acquisition is an opportunity for WinZip’s competitors. It’s indeed quite likely that people who have been using WinZip beyond the trial period will look at alternatives if they suddenly find themselves forced to pay.

However, there’s another risk. File compression is becoming increasingly irrelevant. Most software these days is distributed in self-extracting setups. No zip tool needed. Hard disks get larger by the minute, and can easily hold a lifetime of data. DVD writers are becoming standard issue, and the discs are very cheap. And for really large stuff, like movies, you need tailored algorithms like mpeg rather than zip for compression.

Email is probably the only reason to use a zip tool, particularly for people with slow connections. However, if there’s suddenly no popular free zip tool, it won’t be long before most email clients have built-in zip and unzip capabilities.

Still, WinZip’s biggest competitor is WinZip itself. The version I’m using dates from the previous millenium. It’s unlikely I’ll ever upgrade to anything else, since it does all I need. It’ll be hard for WinZip’s new owners to convince the people using an older version beyond its trial period to download a newer version that expires.