Global Moxie

Photo by shyb.

I've decided to raise the price of Big Medium, the first increase since its debut in January 2003. When Big Medium 2.0 is released, the price will bump up to $185.

The price covers a lifetime license for a single installation of Big Medium, which can manage an unlimited number of sites on a single server. It also includes a year of free upgrades. This upgrade subscription can be renewed optionally and at any time for $59.

"Huh. $185. That's a $56 jump, a 43 percent increase," the mathematically inclined will observe. Yep, it's a significant increase. But I promise: It ain't gouging.

The truth is that Big Medium has until now been dramatically underpriced, and I've spent a lot of time hemming and hawing, to-ing and fro-ing, to sort out the correct price for Big Medium.

At the end of this process, I think that it's only right to invite you, dear reader, to enjoy a summary -- a kind of slideshow of my tour through the land of software pricing and market landscapes.

The psychology of "the right price"

When I get pre-purchase inquiries about the price of Big Medium version 1.x, questions fall into two camps in about equal measure: "Why is it so expensive?" and "Why is it so cheap?"

This, of course, doesn't exactly help figure out where to fix the price for Big Medium. But it does suggest that I've previously set Big Medium's price into a kind of marketing no-man's land.

This is a common problem for independent software developers. Mac developer Daniel Jalkut summarizes the situation nicely:

Pricing software is one of the toughest jobs facing independent developers. We're stuck in this awkward position where we don’t necessarily have the name recognition to demand the highest prices, but we also can't afford to "give away" the hard-earned fruits of our labor.

See what's happening there? It's not even a matter of value but a matter of perception: "Does this kid Josh Clark have the necessary street cred to charge the price he's asking?" Well, that works itself out over time. The trickier issue, though, is the risk of underpricing, and I think that's the sin I've committed in the past with Big Medium. More from Jalkut:

At what point does "bargain pricing" hurt your sales more than it helps them? And how much does this value perception depend on the context the product is stuck in? I think most would agree that the price $1 is too high for a candy bar, too low for a bottle of wine, and just about right for an mp3. The travesty is you won't even try the $1 bottle of wine, despite the low investment. "It can’t be good!"

Price a product too low and people assume it's a cheap hack job. Price a product too high and people think that you're a greedy, conniving capitalist trying to soak 'em.

A few years ago, Joel Spolsky wrote a marvelous, detailed and, in the end, utterly unhelpful article about the terrible dilemma of software pricing. The more you learn about pricing," he opined, "the less you seem to know." And that's because it all depends on a combination of the squishy fancies of human psychology and the rigid laws of corporate bureaucracy:

When you're setting a price, you're sending a signal. If your competitor's software ranges in price from about $100 to about $500, and you decide, heck, my product is about in the middle of the road, so I'll sell it for $300, well, what message do you think you're sending to your customers? You're telling them that you think your software is "eh." I have a better idea: charge $1350. Now your customers will think, "oh, man, that stuff has to be the cat's whiskers since they're charging mad coin for it!"

And then they won't buy it because the limit on the corporate AMEX is $500.

Misery.

Doing the right thing

Complicating matters is the fact that maximizing profit does not exactly top my list of goals for Big Medium and Global Moxie.

It's not that I have a hairshirt about making money. It's just less important to me than enabling people to kick ass with my software, to see lots of people use and enjoy it, to make it affordable for small businesses and nonprofits.

Up to now, my stance has been to price Big Medium as low as I could stand to go. Call it the "do the right thing" price. The thinking here was that a low price would win loyalty, spread the Big Medium gospel quickly and, frankly, help it make more people's lives easier.

Here's Spolsky on the how and why:

Selling software at a low price means that I can get thousands of customers right away, some small, some large. And all those customers are going to be out there using my software and recommending it to their friends. When those customers grow, they'll buy more licenses. When people working at those customers move to new companies, they'll recommend my software to those new companies. Effectively I am willing to accept a lower price now in exchange for creating grassroots support.

I agree with that basic premise, and I still intend to keep Big Medium's price low relative to its competition. But I think that I've historically set the price too low. In retrospect, underpricing has done little to help the Big Medium community or the product itself.

Priced higher than cheapskates frugal shoppers are willing to go, but lower than its actual market value, Big Medium has been trapped in a valley of market perception. Sure, it's mustered a respectable user base, but considering that millions of businesses and organizations could benefit from software like Big Medium, it's safe to say that market penetration is far lower than it might be.

I'd like to see Big Medium's user and developer communities grow much larger. I think that a price change is needed to help that to happen. The price needs to nudge either higher or lower to get out of its valley.

The currency problem

And then there's the issue of basic survival: Does Big Medium pay for itself? Increasingly, no.

The overwhelming majority of my customers are American, and so it seems logical enough to set Big Medium's price in dollars. Trouble is, I pay my bills in euros, and the dollar has lost over a quarter of its value against the euro since Big Medium launched in January 2003.¹

With Big Medium pegged to the dollar, my return has plummeted in the currency that I use to make rent. Oops.

So what would it take to get back to the return in euros that I got for sales back in 2003? I'd have to raise the dollar price by 36 percent. Tack on another four points for inflation, and the increase jumps to 40 percent. That puts the price at $180 for me to hold even with the per-unit revenue of Big Medium 1.0.

Tech prices do typically drop over time, of course, so it's not like Big Medium's price must keep up with inflation. How much winds up in my pocket after each sale is only one consideration, and it's certainly more my problem than my customers'. It's a crucial number for keeping my little operation afloat, but it doesn't really address Big Medium's value in the market.

So what's Big Medium worth?

One way to get at the right price ballpark is to look around the neighborhood of products that offer similar features or are aimed at a similar audience. Twenty or 30 bucks is pretty standard pricing for consumer apps aimed at individuals, for example, but once you get into the business market, things tend to explode.

Commercial pricing for commercial content management systems is all over the map, from about 100 bucks to 1000 to tens of thousands or even hundreds of thousands of dollars.

Big Medium is aimed mainly at the small-business market. While I've got some individual customers, the principal market for Big Medium falls into three groups:

• Professional web designers who use Big Medium to hand over easy-to-update sites to their clients.

• Internal IT staff who support one or more groups that need to allow regular folks (employees, volunteers, teachers, etc) to update their websites.

• Do-it-yourself small businesses, the mom-and-pops who design and manage their own business sites and need a tool to reduce site-maintenance headaches.

Big Medium's current $129 is definitely far cheaper than other commercial website management apps for small- and medium-sized sites, particularly since I don't (and won't) charge per-seat fees. Here's a cursory survey:

• Movable Type blog software (for all intents and purposes a focused content management system) costs $200 for up to five users, $350 for ten users and $300 for each additional ten users.

• Macromedia Contribute costs $149 for one user or $699 for six. Considering that it's basically useless without at least one copy of Dreamweaver for $399, the starting price for one designer who uses Dreamweaver and one editor who uses Contribute is $548. (Then again, a designer who uses Big Medium may use Dreamweaver anyway, so it may not be fair to roll the price of this sunk cost into the consideration.)

• The ExpressionEngine CMS and blog engine is $250 for a commercial license.

• Interactive Tools charges $299 for Article Manager, which in my oh-so-biased opinion is far less elegant and useful than Big Medium.

Bottom line: Big Medium's market neighbors range from $200-$300 and possibly much higher if you plan to have many editors.

And then there's free

Ahem, yes... Free.

The elephant in the room here is open-source software. While there are still some holdouts who are suspicious of free software, I think that this is generally the one major exception to the "you get what you pay for" perception that hurts underpriced products. Make it free, and lots more people will use it.

There are lots of free content management systems, many of them packed with mind-numbingly long lists of features. I recommend several of them as Big Medium alternatives for certain types of projects. What kind of cojones does a guy have to have to charge a couple hundred bucks for software when there are free alternatives?

Not to paint open-source offerings too broadly, but much of the software fits the by-geeks-for-geeks cliché. It's often anemic on important consumer elements like a friendly interface, plain-spoken instructions and easy access to support.

Hey, I love open source. I use open-source software every day. Open-source libraries play important roles in making Big Medium tick, and I contribute code to open-source projects. Moreover, the generous spirit of the open-source movement rhymes with my own motivations for making software.

I just don't think that open-source content management systems are necessarily less expensive to implement than Big Medium. While free at face value, they're often expensive in time and resources. Although Big Medium does offer fewer features than many high-powered (over-engineered?) open-source systems, it scores very high on perhaps the most important feature, ease of use. Big Medium is carefully tuned to give the right set of tools for a specific set of needs to a specific audience. It earns its dinner.

And of course the commercial price tag buys you support directly from me, your rabidly committed and loyal developer.

Wait a sec, "Mister DoTheRightThing," why not free?

Believe me, I've thought about it. Over the past year I came very close to convincing myself to make Big Medium an open-source project. There's a lot to like about giving away software for free.

I finally decided, though, that this would be the wrong thing for me personally. Specifically, I felt that it would force me into a style of work that I prefer to avoid.

A fella's gotta put food on the table. While open-source software is free to the end user, it still costs money to produce. Somebody has to pay for it. Open source simply shifts the burden elsewhere. There are several basic ways for an independent developer to make a living while giving away his wares. Here are the possibilities I considered:

• Voluntary donations

  The tip jar never works, at least not for anything more than a little bit of extra beer money every month. Too many free riders make it too hard to make a living.

• Corporate sponsorship

  This is how most of the major open-source projects work. One or more big companies back a project by donating cash and/or manpower.

  Alas, I'm not really looking for a new corporate master. It's taken a lot of time and sacrifice to craft a life where my decisions, my workday and my creative process are my own.

  While I'm sure that a corporate sponsor would still give me broad and perhaps complete latitude in guiding an open-source Big Medium project, it would still make the project dependent on corporate whims, at least financially. And I've worked hard to avoid that.

• Consulting

  The idea here is to give away the product, then rent yourself out to help people use it.

  To me, this creates an unseemly conflict of interests, creating a financial incentive for me to make the product hard to use—or at least hard enough that an attractive number of customers would pay me to help them figure it out. I'd rather be paid to make Big Medium easier for everyone rather than for a select group of high-paying customers.

  I'm also not a fan of the consulting lifestyle. Client work is difficult, it involves managing personalities, it doesn't scale. Consulting would take away time from the product work that I prefer, and Big Medium itself would grow less quickly.

• Premium versions

  You see this one a lot: the developer gives away a "lite" version for free and then sells a premium version with more features at a nice fat price. I always find this approach a bit cynical: hold back features from the little guys in order to scalp the big ones.

  It also introduces new hassles of managing, releasing and supporting multiple versions.

A compact with customers

With these unattractive funding options for open-sourcing Big Medium, I've decided to continue doing it the old-fashioned way. I'll keep selling the software directly to the customer, charging everyone a single reasonable price for a single, great product.

I think it's healthier, a kind of compact between me and my customers. A purchase says we're in it together, that we both have skin in the game.

Jason Fried of 37signals put it nicely recently:

When someone pays for your product, they’re investing in your product. They have a chip in the game. They want to see you win so they can feel good about their investment. When you win, they win. Your goals are aligned. You now have a shot at their loyalty. They want you to stay in business so they can use the product they love. Now your relationship can involve mutual, long-term, sustainable benefits.

And so... the decision

Let's review the findings:

• Commercial competition ranges from $200 to $300, often with additional per-seat charges that drive the price much higher.
• Funding an open-source project doesn't seem viable; Big Medium will continue to be a paid product.
• Big Medium should remain the affordable alternative.
• Adjusted for inflation and currency fluctuation, the original price of Big Medium 1.0 in euros is equivalent to $180 today.
• Big Medium 2.0 is a mighty improvement over the original.
• A one-man show may not have the same street cred with some customers as a more established company, and the price may need to be discounted for that.

Considering all of these factors, $185 feels like the right price. It brings Big Medium into its market range while remaining attractively priced relative to the competition. It's cheap without being too cheap. And it pays the bills.

Of course, I'll find out soon enough whether this is the right price and, if not, I can always revisit the decision. And go through the pricing process all over again. Misery.

Tags: bigmedium, business, cms, pricing