May 4, 2009 — On Friday, May 1, Miva Merchant (www.mivamerchant.com), developers of the e-commerce software of the same name, officially made the switch from an up-front fee to a software-as-a-service model with a monthly fee.
Executive vice president Rick Wilson says the switch is the latest step in a process of focused improvement the product has undergone since the company was re-acquired by its current ownership in August of 2007.
Miva Merchant was acquired by the search engine operator FindWhat in 2003, and subsequently rebranded as Miva in 2005, the name it continues to use today. According to Wilson, being part of the larger menu of services, one of the facets of the larger company’s search marketing platform, may have slowed the software’s development somewhat.
According to Friday’s press release, the process of improvement following the August 2007 move began with the moving of the company’s technical support in-house, and was followed by the release of version 5.5 of the software – a full version’s worth of improvement in a more incremental upgrade, offered free of charge.
All of the moves over the past 20 months, says Wilson, were steps toward the recovery of a business with an essentially ill-fitting business model. To a customer with a functioning online store, the idea of upgrading to a new platform and rebuilding that store could appear to be an unnecessary gamble.
The one-time fee licensing also made it difficult for the company to account for providing ongoing support for the software. A change to the third-party systems at Authorize.net in February, for instance, affected a large percentage of Miva Merchant users, and required the company’s immediate attention to accommodate. But in cases like this, he says, the company is essentially working for free – a model that is untenable long-term.
“The part we knew was broken was the way we were collecting revenue. The part that really crystallized for us was that merchants don’t want to wait until there are 100 great new features to rebuild their store,” says Wilson, “Once you have a working store that is making you a profit, it’s literally a bet-your-company operation if you want to change shopping cart platforms. And that’s true even of going from an older version to a newer version if they’re completely different platforms.”
The company’s need to fix a failing business model, and fundamental need among customers for incremental upgrades rather than large-scale, all-at-once shifts, says Wilson, combined with a new demand for compliance to create the circumstances that spurred the move to the new model.
As of July 1, 2010, companies using applications that handle credit card data must ensure that the software is compliant with the Payment Applications Digital Security Standard, a further certification to be imposed by the credit card industry’s PCI Security Council.
Miva Merchant will be patching older versions of its software in order to bring them into compliance with the new standard, along with upgrading the current version.
Coming to terms with hosting providers on the new monthly pricing for the software was the main objective in designing the model, says Wilson, since licenses sold through hosting providers account for all but a few installations of the product.
On the new monthly-fee system the price per storefront – charged to the web host, which will in most cases pass the cost on to the customer – will be $10 per month, with volume based discounts.
“I think what you’ll see out there is a slight adjustment in market price for our product,” says Wilson. “If the average market price for hosting with Miva Merchant was $35, I wouldn’t be surprised to see the average a year from now be $40. But we’re not dictating that. We have changed the underlying pricing structure and hosts have to figure out how that fits into their model.”
As has been repeated often in the SaaS discussion, there are certain inherent advantages to the end user and the host in the subscription software model. But in this case, Miva had been delivering some of those benefits without charging for them. The switch required the company to approach hosts with a new business model that required them to start paying a subscription fee for the ongoing support the company had previously provided for free.
Fortunately, hosts inherently understand the recurring billing model. And customers, says Wilson, have by and large welcomed the recent improvements to the platform, motivated by the need for the continued support of the product, particularly in light of looming compliance issues, and acting on the goodwill accumulated by the company with the free release of version 5.5.
“If we put this out there, the obvious answer is nobody pays anything until something breaks, and then they’d all want to pay their $7 and get the thing that fixed it,” says Wilson. “We weren’t open to that model, because it wouldn’t allow us to be a healthy company. So we went to the hosts and said we will encourage you to pass this fee on to your customers. We will write a letter on your behalf that you can show to your customers.”
And Miva Merchant, he says, is working with hosts to accommodate their particular circumstances, making special concessions for things like recent purchases, so that nobody is paying twice for the software. He says they won’t be canceling any licenses. The risk is that an unsupported store would very quickly break.
“For anything we would feel obligated to fix if it broke, we went to the hosts and said starting May 1 this is the fee, and then we’ll work with you to figure out the actual math of who’s using what,” says Wilson. “One thing that’s critical to mention here is that nobody is getting their site turned off.”
