We have been selling our software this way for a long time. Before we introduced these two pricing levels, we were selling our software for $29.95. Adding the more expensive Pro edition for $49.95 was a good way to increase the price without dropping the old price. After the change, about 80% of our customers started opting for the Pro edition, causing a nice jump in profits.

The presence of two editions also gives our visitors a choice. Price conscious customers can opt for the cheaper Standard edition. Buyers just looking for the best, regardless of price, can choose the Pro edition. The availability of choices helps to increase conversion rates.

As you can see in the image above, we have done something similar with our range of barcode scanners, a cheap CueCat for $19.95 as an entry level scanner, a deluxe laser scanner for $139.95, and a mid-level option for $79.95.

But offering multiple editions also has one drawback: it adds complexity.

Complexity

If you offer multiple editions of your software, at different prices, you will have to as clear as possible about the differences between them. Our solution for this is to include the little blue question mark thingies everywhere we mention the two editions. Clicking it pops up this feature comparsion chart:

But still, a large percentage of the support questions we get is about standard and pro editions. People still ask about the differences between them. And about how to upgrade from Standard to Pro. Or why feature X has suddenly disappeared after unlocking the trial edition (the trial edition has all Pro features, so unlocking to the Standard edition disables some features). Also, we get people complaining about feature X being a Pro feature, while they think “this is something every user needs” (yes, we also get this for advanced stuff like “Export to XML”).

Having two software editions also adds complexity to your shop page, especially if you offer multiple products. The page has to show list both editions, with their prices and again some way to find out more about the difference between them. The buyer must be able to to add either the Standard or the Pro edition to the cart, and preferably the shop page should allow switching between the two. In the Collectorz.com shop, it looks like this:

So I began wondering: is the availability of the two editions still increasing my profits? Or is the extra complexity hurting my conversion rates? Well… if you have been reading my posts for a while, you can probably guess what’s next…

The test

Here’s the A/B split test I have been running for the past 14 days:

• Version A: As described above, the product pages and shop offering two editions, Standard and Pro.
• Version B: Product page and shop listing just the $49.95 edition, just called “Movie Collector”, without the Pro postfix.

In the B version, the Buy-box on the product pages looked like this:

And the shop page could be reduced to:

Simpler, but less choice and looking more expensive.

The results

Well, let’s start with the good news:
In the B group the average purchase value was 31% higher.
But the number of sales (= conversion rate) dropped by 25%, causing an overall 2% drop in profits.
The conversion to trial sign-ups also dropped, by about 3%.

Interestingly, during the first few days of the test, the results looked promising. The B edition immediately showed the increase in purchase value, but the number of sales was higher too. The A version proved better in the end, but took more time to pick up steam.

What’s happening here? Well, I can’t be sure, but it looks like the more price-conscious customers are also taking more time to decide on their purchase, e.g. by seriously evaluating the trial edition. The kind of user who had no problem with the $50 price tag apparently also had no problem buying without trying. Hey, why not add a 2nd $50 program and the deluxe scanner too

Anyway, it seems like we shouldn’t get rid of the Standard edition (yet). The 2% decrease in profits is small, but a 25% drop in new customers being added to “the pool” is unacceptable and could cause a large drop in profits in the long run (less cross-sells, less up-sells, less upgrades, etc…).

But wouldn’t it be great to increase the average purchase value by 31%, without the drop in conversion rate? Back to the drawing board…

Technical

Multi-platform development
One of the advantages of web-app development is that you can serve users on all platforms with one code base. We invested a lot of time and money in creating Mac editions of our main 3 products, but for the Connect products we don’t have to. It even works on Linux
Of course, web-development has it own problems: getting your pages to look the same in all browsers. This can be a nightmare, especially if you try to support IE6. But our lead web-developer Robbert had a lot of experience in this area, so we’ve got it covered.

Maintenance and software updates
For online applications, all code runs on your server, which makes it possible to do live fixes and implement small improvements. As soon as you put the new code up on the server, every user is running the latest version. No builds, releases or uploads for you, no downloads and installs for the users. Quick and easy.
However, it’s important to stay alert though and keep rigorously testing your code before it goes live. Because it’s so quick to do fixes, it’s easy to get careless.

The same goes for adding new features, you can do so continuously. There is no reason to “group” enhancements and features into minor builds and major updates. For our Windows and Mac apps, we always try to keep the frequency of maintenance builds as low as possible, because it takes at least an hour to safely release a new stable build. Also, we often with-hold major new features for the next major upgrade, so that we can charge an update fee for it. For online apps, you’re usually charging a monthly subscription fee which includes all updates, so you are freed of the “major update cycle”.

There’s a catch though:
For downloadable, client-side software, users always have the choice of not upgrading to the latest version. Either because they don’t need the new features or because they don’t like the changes you made. Even (or especially!) if the changes are cosmetic.
For web-apps, users don’t have that choice. When you add a feature or change the look and feel of your app, it’s immediately live for all users, whether they like it or not. So for online apps, you should think a little longer before you make changes or add stuff that not every user may like.
(At Collectorz.com, we have removed features from our apps a couple of times, because we found that our software would be better without them. Less is more… If this generated complaints from users, I could always tell them to just downgrade to the older version. Not possible for our online Connect service.)

Live stats on usage
Another thing that has proven useful, for both technical and marketing reasons, is the ability to get live statistics on how users are using your software. Which features they are using, the sizes of their databases, the problems they are running into. Good data to have.

Privacy, security and data safety

For online apps, all user data is stored on your servers. Apart from the technical issues, like hosting, bandwidth, performance and disk space, this also causes some interesting new areas of “concern”:

Privacy and security
If you store user data that could be regarded as personal, then you’d better make sure your server and software are secure and this data cannot be accessed by anyone who is not supposed to see it. And even if you are fully secure, it’s still wise to have a good EULA and Privacy Policy in place. For Collectorz.com Connect, we hired a lawyer specialized in this stuff. Better safe than sorry.

Data safety
Even if the data is not of a personal nature, you still want to take good care of it. For offline software, the user is responsible for his own data and for having backups of it. But online, you are responsible. You really won’t want to loose or corrupt the data of your customers. For Connect, we have implemented a backup scheme that makes a local backup of all user data on a daily basis. And before every risky software update, we make an extra backup, just in case.

Customer Support

Another great thing about web-based applications is the advantages for customer support.

The first advantage is that all users are running the same version, the latest and greatest version that is. No problems with users running into bugs that you fixed ages ago, just because they neglected to update their software.

Also, the user’s software and their data is on your server, so if a user reports a problem you can simply log in to his account and take a look. In general, once you can reproduce a problem, you’re more than halfway to fixing it. And online, most issues are instantly reproducible, even user data dependent problems (and we all know what a nightmare these can be).
In many cases, you can even immediately fix the problem for them or help them live to accomplish a tricky task. Imagine how happy your customers are if you tell them:
“Just hit refresh in your browser now and it’ll be fixed”.

Sales

Last but not least: our experience selling online software, or, to be more precise, selling software subscriptions. Because that is the main difference: you are selling a subscription-based service, not a software product for a one-time purchase price. Huge difference, both for you and for your customers.

Pricing
Of course, the first question you run into is pricing. For regular, client-side software, picking a good price is the most difficult marketing decision already, but I found that I had even more problems deciding on the best price for the Connect subscription fees. And, to be honest, I don’t think I’m there yet.

We started out with a $40 yearly fee, plus a $30 setup fee. For existing customers, we had a 50% discount on the first year and they didn’t have to pay the setup fee.
Soon after launch, we dropped the setup fee entirely, as I felt it didn’t really help to attract new customers to the service ($70 just to get started is simply too much).

Later on, I added the possibility to pay for just 3 or 6 months. At the same time, I started presenting the fees differently. I now list the “regular price” as $4.95 per month (which is indeed what you pay if you just subscribe for 3 months), plus I present the 6 and 12 month subscription prices as “volume discounts”. For instance:

One Year Subscription: Regular Price: $59.40, Discount: $19.45, Now: $39.95

This seems to work a lot better. We are now seeing new users sign-up for all 3 subscription levels (3, 6 or 12 months).

The funny thing about subscription fees is that users seem to think about them differently. I mean, sell a $50 software product and nobody asks what you need that money for, or what you are going to use it for. But ask a $39.95 yearly subscription fee for an online, hosted application and people suddenly start thinking about where that money is going, whether hosting their data online is really that expensive. While the same people never seem to be having problems paying $50 for your Windows software, plus $25 per year for major upgrades.

Here’s an example of one user’s feedback on our Connect pricing:

You want to charge $39.95 a year to simply host LINKS for us in your database (with a subset of personal information). Yes, if I order before October 31st, I get it for $19.95 for this year. Let’s move past the marketing ploys for now because even that is a lot to charge for LINKS and TEXT to be hosted on your servers, especially since I pay $39.95 a year to host UNLIMITED data with UNLIMITED bandwidth and GIGS in mySQL tables with my current web host provider. That of course is in addition to the over 200 GB of FREE data I host on Windows Live and other related resources.

We have seen several forum posts and emails along the same lines. All from existing customers, who are used to our pricing for our Windows and Mac apps. I don’t expect this to be much of a problem for new customers who start off with the online service.

Selling to existing customers
Which brings me to selling Connect to our existing customers. As I posted before, this was one of our goals when designing Connect: to be able to sell it as a sharing / online publishing add-on to users of the Windows and Mac OS X edition. We invested a lot of time creating a smart two-way syncing system, so that users can synchronize their collection data between their Connect account and their local database. Cool stuff.

Up till now, we have sold a Connect subscription to about 4% of all customers owning a license for the latest version of Movie Collector (Windows or Mac). Not bad, but I was expecting to sell more in the first couple of months. Now there are still some limitations in the usage of Connect, especially related to the syncing system, so I expect to sell some more once we resolved all of these. Maybe tweak the pricing…

Selling to new customers
We haven’t sold Connect to many new customers yet. I have just started slowly promoting our Connect editions to new customers using Google Adwords. Slowly, because the Connect website hasn’t received my usual level of tweaking and tuning to optimize its conversion rate. I don’t want to risk loosing too many regular Adwords sales because the Connect traffic isn’t converting yet.
But as I said in my Art of Ignoring presentation, one needs traffic to measure and optimize conversions, so I guess I will have to take that risk soon and start directing a lot of costly Adwords traffic in the Connect direction. Scary…

I will let you know how this is working out. Hopefully I will be able to present some data in my ESWC presentation in a few weeks. See you there.

Here’s an update on our experience selling iPhone apps.

Sales

I was expecting to sell just enough of them to my existing customers, so that we could cover the costs of development. Then after that maybe get some positive effects from the cool looking screenshots on our website, convert a couple more visitors into buying our stuff.

But overall, sales are higher than I expected, much higher in fact. Here’s a weekly sales graph:

I’ll keep the absolute sales number to myself
But for each of the apps you can see a high sales peak when we announced it to existing customers of the respective Windows software. For the movie, book and music apps, there was a second, smaller bump later, when we updated our Mac software with the necessary iPhone export features. And for each of the apps, those first peaks more than covered the development costs. Which was a nice surprise of course.

But what I am even happier with, is the fact that sales are still strong. After the launch peaks, sales have dropped to a nice steady level. The iPhone apps are now generating a considerable amount of extra monthly profits. Enough in fact to make it worthwhile to invest more development time.

It’s hard to tell whether the availability of iPhone companion apps is actually convincing more new visitors into choosing our software over that of our competitors (hi Max!). Partly because of the inability to track iPhone sales. More about that in the next paragraph.
But my idea is that it gives our website an more “up to date” feel. Even if you don’t own an iPhone, you may be impressed by the fact that our company can do this kind of stuff

Tracking

As you know, I love tracking everything. And in this regard, selling iPhone apps is a nightmare.
Apple gives me nothing to work with, I don’t even get instant sales notifications. I have to login to the horrible iTunes Connect system to download my sales stats manually. Initially I did this every day, downloading the CSV reports, importing them in Google Docs, summing the counts to get a nice graph per app. But this was so much hassle that I am now doing that per week only.

But what’s even worse: Apple doesn’t give me any customer information. Just overall sales numbers per day/week/month and per region. So I have no idea who purchased my apps. And I have no way to link iPhone sales to existing customer data.

This means I can’t follow up by email with tips or news about updates. And it makes it impossible to send targeted, segmented email campaigns. E.g. for a new campaign to sell the Clz Movies app, I am forced to just email all Movie Collector users again. I have no way to exclude the ones that already purchased my iPhone app. That just sucks.

Marketing

Two of my favorite ways to sell stuff are Google Adwords, Discount Coupons and Upselling during checkout. But for selling iPhone apps, I’m out of luck on all three.

Adwords lets me bid on terms containing the word “iphone”, like “iphone dvd organizer”, but I cannot use the word iPhone in my ad because of trademark violations. This makes it hard to write high CTR ad copy.
(I read somewhere that if you contact Apple they may give you permission to use their trademarked words. I haven’t looked into this yet.)

Apple’s App Store does not have a discount coupon system. Which is a shame, cause I would love to do temporary promotions for my iPhone apps to specific segments of my customer base. Of course I can temporarily lower the price of my apps, but then everybody gets the lower price. Could be a fun experiment too, but I’d prefer to use coupons. Just gives me more control.

iPhone apps can only be purchased through the App Store on the iPhone or iPod touch itself or through iTunes. It is not possible to sell them yourself, in your own online shop. IMO this is one of the reasons of the success of iPhone apps: having a simple one-stop-shop for all iPhone software, just enter your iTunes password to buy stuff.

However, it also means that I cannot bundle the iPhone apps with my regular software. I mean, how cool would it be to if I could just offer a “Movie Collector plus Clz Movies” bundle offer in my own shop? Or what about having the Clz Movies app as an upsell on my Upsell page. A $10 iPhone companion app would be the perfect upsell…
I am doing the best I can to make all my customers and new visitors aware of the mobile apps, but if they want them, they need to make a separate purchase in the App Store.
Why not allow me to sell some kind of vouchers that my customers can then use to download the iPhone apps? How hard can it be?

Customer Feedback

In general, our users love the iPhone apps. We already have many favorable reviews in the App Store. And we received some great suggestions and feature requests. We are implementing most of those in the upcoming 1.1 updates.
Not all though… some users would like to see the iPhone apps grow into full iPhone editions of our Windows/Mac software, including editing features. But that’s not where I want to take these apps, at least not at the moment. They have been designed as mobile viewer apps, as companion apps for the Windows editions. Adding editing capabilities would complicate everything (both code and UI) and I don’t expect any extra sales from it.

We did get some complaints about the $9.99 price tag. A lot of iPhone apps are cheap, ranging from $4.99 for popular games like Peggle, to $0.99 for small gadgets, to free gimmicky apps.
However, judging from the sales, $9.99 seems to be a good price. Maybe we would sell a couple more if the price was, say, $4.99. But I am sure that we would be making a lot less money

Finally, an interesting effect I am seeing is that users of other mobile devices (Blackberry, Windows Mobile, Android, etc…) are quite upset with us doing iPhone apps only. Some of them really feel discriminated and accuse of of being Apple zealots. We have seen weird discussions on our forum, with Blackberry users bashing the iPhone’s features, bringing up sales numbers of mobile devices, ultimately demanding that we create Blackberry apps too, because there’s more Blackberry devices around than iPhones…
I tried explaining that the App Store has sold more software than all other mobile devices together and therefore it makes more sense to create iPhone apps. But of course, that didn’t help much

What’s next?

So will we ever create similar apps for Blackberry or Android? Windows Mobile maybe? Mmm, don’t think so. I don’t think the extra development costs will ever be earned back. And what’s more important, we do already offer an alternative solution for other mobile device with our Movie Collector Connect web application. Connect editions for books, music, games and comics are in the works.

I’d rather invest more time in improving the iPhone apps, try to sell some more of those. Which is what we are doing now. We are working on 1.1 updates for all five apps, improving the user interface and performance, adding some more fields and a couple of missing features.

So I tried it myself. Last week I started an A/B split test on this. Group A getting my regular .95 pricing, group B getting rounded prices. But for me, it did make a difference. Here’s my results after 8 days:

For rounded pricing:

• Downloads: down 5.2%
• Sign-ups: down 3.6%
• Sales: down 5.8%
• Average First Purchase Value: same
• Profits: down 5.9%

These are the results for just over 28,000 first time visitors and a total of 260 sales (A vs B -> 135 vs 125).

Statistically speaking, this is not enough data to be confident that odd pricing works better.
But still, I don’t think rounded pricing is ever going to cause a substantial improvement in profits for me. So I stopped the test today.