Software Pricing Controversies

We run into software pricing controversies every now and then. JetBrains tried to move to a subscription-based licensing model from a traditional perpetual licensing model with annual maintenance. This change also woke up the press and caused stir in the development community and current JetBrains clients. Lets analyze what really happened and I will give my take on how I feel about it.

The biggest controversy in JetBrains announcement was that all products would be moving to a subscription-based model. The company told its customers that previously purchased software licenses would stay valid with a software upgrade subscription for a year. Where the controversy kicked in with force was when JetBrains concluded that after the first year users have to move into a subscription-based model. In this new model, JetBrains will offer “JetBrains Toolbox” that includes a set of tools that comes with the “toolbox” and users can subscribe to separate tools or the entire “toolbox”.

The community reacted to this decision forcefully with negative comments whereby JetBrains posted immediately that they are listening to feedback and will revisit its decision. The final update came quickly from the JetBrain CEO Maxim Shafirov. I am impressed how JetBrain managed this controversy and I even think they were a bit too generous with their offer. However, this should take away any doubts that JetBrains does not have the right intentions. This is what JetBrains decided to do:

• Decision to move towards subscription-based model is still going to happen
• Every existing customer will receive a perpetual fallback license once they pay for a year upfront or 12 consecutive months
• Every existing customer will receive up to 40% discount for continuous subscriptions.
• Customer can still use the software without an Internet connection.
• Current customers with an active or recently expired upgrade subscription get first two years of subscription for the price of one.

I think all these actions from JetBrains are extremely generous and some of them are in my mind unheard of especially as the software market is moving towards a subscription-based model and every software vendor, including JetBrains have to change their model to reflect the new reality. Mr. Shafirov gave some reasoning to their decisions and one of the key decisions that every software vendor has to make is the increase the velocity and agility of software development.

Gone are the days where new releases are coming every year or two with upgrade cycles. Software is updated on regular basis, the industry expects it and we as software consumers just have to accept that that is where things are going. The fact that JetBrains can react quicker to new demands from the technology market is a good thing for its customers as it ensure that there is integration and compatibility to surrounding infrastructure and software ecosystems. In fact, I am an avid user of both Microsoft Office 365 and Dynamics CRM 2015 Online and expect Microsoft to bring me updates on regular basis which they have. This is the way to please customers and to ensure that I feel there is value to what I am paying for. Pricing after all is about value-based pricing and this is what I have worked with numerous organizations when defining what the price should be for the software that is consumed. It is not easy by any stretch or imagination and it requires ongoing and continuous customer validation by making outbound calls to customers and channel partners and interviewing current customers and executing surveys on regular basis.

A couple of days ago I got an offer from Mindjet organization that there is a new release coming up soon with pretty interesting features. I looked at my license keys from the past and decided that I think I need to renew my license. Mindjet lets one do it online, but of some reason my license key did not work out. I had forgot that I did renew my license last year but have not even installed the software on my laptop. The key was some outdated key from the past. I sent a support request for Mindjet, following day I got a call and they explained that I was not able to upgrade from version 12 to 16 due to the reasons of failed annual maintenance (at that time I did not know that I had paid for it). After my call, I made a decision that the value for me “testing those features” out was not worth it so I said that “thanks but no thanks”. 10 minutes later, the sales rep from Mindjet called me up and said that he looked at my past records and that I have paid for many years including previous year so I was eligble for the upgrade. He did not have to take this extra effort but he felt that he did not want to lose me as a customer. Time will tell if the vale of the new features will bring something to my workflow and work that benefits me.

Pricing has multiple different dimensions that any software organization needs to think about and it is one of the toughest initiatives that any software organization needs to get right but it will take some analysis and work before pricing can be set. The way I see pricing is always through the lens of value proposition that it brings to the user and this is when customer jobs, pains and gains needs to be explored and these aligned with the features/functionality and the pain relievers and gain creators that the software vendor and the customer assumes there to be.

I am a true believer in analyzing and using value proposition canvas from Dr. Ostervalder and his team in identifying why the solution is built and why the customer or customer segment should even care about the solution. Without that, there is no way that pricing can be set unless the software company takes pricing by cloning pricing structure from main competitors.