Ian Landsman is Starting From Scratch, March 29, 2006:
Maintenance Pricing Model is Win Win
If you're in the market for a powerful and user friendly Help Desk solution, please take a look at my company's flagship product HelpSpot.I've really learned alot about pricing since starting UserScape and after this next big HelpSpot release I plan on writing it up, but for right now I just want to share this little nugget.
One of the things I'm most happy about with the pricing of HelpSpot is the decision to use a maintenance model. How the HelpSpot pricing works is that customers pay the license fee only once when they first purchase. After that they pay $49/year per user to continue receiving updates and support. This entitles them to all updates so even when HelpSpot moves to version 2 they owe nothing as long as their maintenance is in good standing.
The reason I love this model is that it's win win for everyone. The benefits to me are assurance of a reliable stream of income from maintenance, less expense publicizing and pushing for major version upgrades and more freedom to innovate (more on this below).
My customers win because their budgeting is much easier since they know the yearly cost and won't be surprised by a new expense when the next version comes out, they only pay for the license once, and most importantly they never have to wait for new features.
Since I don't have to artificially hold back on new features in order to justify people moving to version 2 I can go ahead and add innovative new features right now. That means I have alot more fun building the product and they get to have the new features they want much sooner. No waiting a year for the next version, then getting budget approval and so on.
On top of all that I think it really puts my product at a competitive advantage. The pricing is much easier to understand since there are no variables. There's no version 2 coming out in an unknown timeframe with unknown features that they might want to upgrade to. It's all very clear right from the beginning.
And finally the last big win win is support. Since everyone who has a current maintenance agreement is entitled to the latest version it makes support much easier. If there's a bug that's been fixed and they haven't upgraded, they simply upgrade. No fighting with them over purchasing the next version to get the fix. It also means most customers are running the same version (the current one) since there's no back versions to support.
Discussion
Ian, I am wondering what you do when someone's subscription lapses. Do they have to pay the initial fee again or do you let them come back any time they want?
Created by saberworks on 03.29.2006 2:03 pm
Hi Ian,
We looked at the same type of license model but decided to go against it. We looked at it for exactly the same reasons you did, the upside is great to everyone.
The downside however, is that over time some of the credit cards people used to make the initial purchase will stop working. Some people/companies will not want upgrades and will forgotten about the yearly license. This means a lot of chargebacks or unpleasant support calls
Also, as it was mentioned before, what do you do with people who fall behind? Let's say I stopped upgrading for 2-3 years?
There's a few more issues, but those are the biggest ones for us. What we did instead is take the path of one year of free upgrades. Yes, if we don't release every other month, some people will get some free months of upgrades because of the release dates, but we figured this is the better option for us.
Basically, I think you'll know too if this option works out for you after your first upgrade. It'll all depend on your attrition rate and your "forgetful" rate (for lack of better term). So please keep us all posted on how it plays out after your first major upgrade period this fall. I'm sure a lot of us will be interested to see how your licensing model plays out.
Regards,
Stephane Grenier
http://www.FollowSteph.com
http://www.LandlordMax.com
Created by Stephane Grenier on 03.29.2006 2:03 pm
As the user base grows I'm sure some customers will fall behind as you say, but the updater always brings HelpSpot to current no matter how old the version so updating should always be straight forward even if they are a few versions back.
I agree that more than anything the version number serves as a way to communicate what build customers are using, etc.
Created by Ian on 03.29.2006 2:03 pm
I agree that the maintainence model is a good way to go. One thing I think you will come to find though is that some customers will not want to upgrade simply because things work fine the way they are. These customers are the ones who may have you go back and patch software that is several versions back. You may want to plan for these types up front by only supporting X number of versions back, or if you can get away with it having them upgrade to receive bug fixes. In a previous company I worked for, this got out of hand and cost a lot of overhead going back and fixing older versions because the customer did not want to upgrade. However, if your upgrade path is simple and reliable this may not be the case.
Also, as for versioning, I think it is important to have one just as a means of communication. That way you don't have to say, "HelpSpot May 2006", you can just say HelpSpot 1.1 etc. I have a free hosted web app I developed that I still plan on versioning so I can build release notes for it etc.
Tom
Created by Tom Davies on 03.29.2006 2:03 pm
Yeah I thought about subscription but I think it's too hard a sell with downloadable software. It just doesn't feel right because it like nothing the customers ever done before. With a hosted app it makes sense, but less so with a downloadable one.
I agree I'll have some attrition that's only natural. I don't think I'll have 100% continuance on the maintenance, however, I do think it will be higher than 50% and my target is between 70-85%. I'll be sure to let everyone know how it goes!
Created by Ian on 03.29.2006 2:03 pm
I agree with the notion of license+maintenance is a win-win; but it is not always such an easy sell. Many companies (especially larger ones) "automatically" assume they will pay for maintenance; but I suspect that you will find as your customer base broadens that there are also a great number of companies that either object to it at the beginning, or stop paying it after the software has been in and working for a while. Certainly as cyclical budget pressures come and go (a fixture of large companies and well as small), the decision of whether to purchase the next year of maintenance can come under reivew as easily as any other.
I think in the long run, a "subscription" model is possibly even better. A downside of this for the vendor though is the smaller revenue at the beginning, making cash flow more problematic. It also has the problem of sometimes being an even harder sell; customers tend to forget that nearly all software has a finite lifetime, and sometimes think they are being "ripped off" by ongoing subscription costs.
Created by Kyle Cordes on 03.29.2006 2:03 pm
See I think that's the MicroISV in you talking Serge 
If it were you or me when the time to pay the support came due we'd sit there and think about if we really have ever needed support and if it's worth paying. Then we would or wouldn't do so.
That's not really how bigger businesses work (even just a little bigger). These businesses expect to pay support on all their software. They budget for it. HelpSpot isn't the only thing they're paying support on and they're not waiting to decide at that last minute. They want the coverage of knowing if something goes wrong they can get help.
You also have the cover your butt factor. Remember in almost all cases it's not the decision makers money. So what are they really saving? Nobody will notice if they don't spend the $500 to continue support, but everyone will notice if the help desk crashes and they can't get help for it because Bob let the support expire or if a bug they always hit never gets fixed because they can't upgrade.
Created by Ian on 03.29.2006 2:03 pm
> but for business software I think it’s great.
I do too. And the OSS argument is obviously a good one.
The thing I wonder is whether at some point, clients consider what they have is _good enough_, support is no longer needed and possible enhancements are no longer worth paying for. Hopefully they don't 
Created by Serge Wautier on 03.29.2006 2:03 pm
I've been wondering that myself Michael. As you say there's really no reason now to move to version 2 except to not be on version 1. The main problem I have with going versionless is the perception of it. It would require extra explanation (since it's not hosted and therefor not obvious) and I hate doing things that distract from the purchasing process.
Right now I'm leaning towards just drawing a line in the sand. I have several more big features which to me should have been in 1.0 but there wasn't time. I'm adding those now. When those are done I'll probably stop the 1 branch there and move onto 2 which is more about niceties.
Created by Ian on 03.29.2006 2:03 pm
Ian, I almost wonder... Is there ever a reason to have a "version 2". Could you just keep making "HelpSpot" better and better? Kind of like the way hosted web applications keep getting better, but they don't need to have version numbers?
Just a thought...
It might be worth it just for the marketing "pop" of a "new version". 
Created by Michael Sica on 03.29.2006 2:03 pm
I also like this pricing model for business-oriented software, but wonder whether customers ever kick up a fuss when asked to bring their support contract up to date. It could be perceived as paying for nothing, since they are essentially backpaying for support over a time period when they received and asked for no support.
It's probably best to be clear upfront about the support contract terms, so that customers understand up front what their contract provides them and the terms for renewing a lapsed contract.
Overall, I do think this is the best approach for business software, for many of the same reasons you mentioned, though.
Created by Jesse Smith on 03.29.2006 2:03 pm
I don't know they will, but I suspect that most will. With this type of software businesses are buying support and updates as much as the software itself. It goes back to that open source discussion as well. These businesses could be using open source products for free, but instead they're paying me.
I do think that HS is better than many of the OS alternatives, but beyond that companies want to know there's someone to cal if things go wrong. They also want to have someone to request features to and so on.
Also there's other companies using a model pretty much like this very successfully. FogCreek is one, Atlassian is another. There are many other examples as well. I don't know if this would work with consumer software (probably not), but for business software I think it's great.
Created by Ian on 03.29.2006 2:03 pm
Ian,
How do you know people will renew their subscription since you have not reached one year yet ?
Created by Serge Wautier on 03.29.2006 2:03 pm
They can bring it up to date. So if they missed 6 months they have to pay that back amount plus the next full year.
Currently all customers are covered under the one year that comes with the initial license purchase so I haven't hit this yet, but I will in the fall when HelpSpot turns one.
Created by Ian on 03.29.2006 2:03 pm
[...] Ian Landsman’s Weblog (The Maintenance Pricing Model is Win Win confirmed what I had in mind for our new product) [...]
-----
Created by Eyal’s Posts » Micro ISV blogs on 03.29.2006 2:03 pm