The Law Professor

vBulletin 4 Forum – The Controversial Upgrade Offer

Posted on the October 30th, 2009 under Blog, Breaking News by thelawprofessor

For almost a decade, Jelsoft’s vBulletin software dominated the software market for online discussion forums. It was the quintessential example of how an enthusiastic customer base can extend a product and grow the base business exponentially. In 2007, Jelsoft and its potential was sold to Internet Brands, a public company, for an undisclosed sum and moved forward with few changes and little fanfare. In October 2009, everything changed in just two short weeks. The recent customer revolt against the new management team (the founders and most of the original team are gone) - ostensibly renamed as vBulletin Solutions (”vBS”) – is an interesting, ongoing case study that companies changing their software licensing models may want to follow. In the interest of full disclosure, I am a current owner of vBulletin software, managing a long running legal advice & assistance forum since the earliest versions appeared in 2001. My comments below represent my good faith understanding of the confusing events of the past two weeks and subject to correction.

Challenge of Changing the Licensing Model

Changing the provisions of a software license can be most challenging, especially when it may significantly impact the timing and amount of payments required from customers. I think that there are at least three fundamental rules a company should follow and plan carefully in advance of such a change:

1. Communication: Listen to and address customer concerns – ensure that the licensing and pricing changes are easily understood, accomodating and provide reasonable prior notice
2. Pricing: Calculate a reasonably acceptable market price and appreciate your true ceiling for customer tolerance
3. Execution: Ensure your sales and customer support team is ready to carry out the change and address anticipated negative feedback

Part I: Adequacy of Communication

For almost 10 years, customers of Jelsoft could purchase a forum license for a fee of roughly $160-180 which provided one year of product updates and an annual maintenance renewal option of $40. Without any prior notice, vBulletin sent out a confusing “pre-sale” email on October 13 to “preferred customers” informing them of important details which would be effective immediately. A new “powerful” product was announced in two varieties – (i) a new version of the existing forum product and (ii) the “suite” which also included additional content management modules. The existing license structure would be be changed from the purchase and annual maintenance subscription fee model to a one time payment for each release of a major version of the software. Customers were given a two week decision period to either pay for an upgrade to the suite from their current vBulletin 3 forums product or pay significantly more later (emphasis added.)

As a preferred customer with an active license, we are excited to offer the vBulletin Publishing Suite at a pre-sale discount price of only $130 (over 50% off regular price). This is a truly limited one-time special offer giving you $120 off the upgrade price but will expire on Friday October 30, 2009.

Customers arrived at the newly designed vBulletin web site, sporting a confident Superman-like mascot tearing open his buttoned-down shirt to reveal a “V” on his tee and a nifty new powerful URL – best-forum-software.com. When trying to purchase this special offer, many customers discovered the $130 upgrade price for an active license was not accurate. What IB might have intended to say was that the only customers might qualify would be those customers who were still within the first year from date of purchase and those who had annually renewed their annual maintenance subscription fees and what Jelsoft prior referred to as a “license renewal” or “annual update service.” Since an owned vBulletin license does not “expire” and the licensee could continue to run the forum software (but not receive updates), then a customer who owned a license to the software, by definition, still has an “active license” that is “effective until terminated.”  The lack of an adequate distinction by vBS led to a wave of customer confusion that spread through the vBulletin presales forum like a pandemic. This pricing “anomaly” was explained by vBulletin General Manager, Ray Morgan’s post on October 14 not as an error, but as follows (emphasis added):

Due to an overwhelming response and interest in the pre-sale event for vBulletin 4.0 Publishing Suite, we’ve decided to extend an offer to those customers with inactive licenses. For licenses that expired in the last 12 months, we are offering an extra $45 discount for advance ordering, in addition to the publicly available pre-sale savings. This means the all new vB 4.0 Publishing Suite will cost you only $190, a total savings of $95. For licenses that expired more than 12 month ago, we are offering an extra $25 discount for advance ordering, in addition to the publicly available pre-sale savings. This means the all new vB 4.0 Publishing Suite will cost you only $210, a total savings of $75.

So the official explanation of the original email is still wrong but I’ll explain what they meant to say. vBS intended that NO upgrade offers were to be extended to customers who had active licenses but expired annual maintenance subscription (and perhaps expiring just a day ago.) As a result of “overwhelming response” from customers (complaints?), instead of paying $40 + $130 for a renewal fee for annual maintenance subscription plus the upgrade, customers would pay $60 + $130, resulting in a “savings” of $95. And if your annual maintenance subscription expired more than 12 months ago, instead of paying the $40 + $130 fee you’d pay $90 + $130, resulting in a “savings” of $75. Are all of these special customer “discounts” clear? Astonishingly, the response I read in the forums that “excused” the emailing snafu was the following honest explanation by a vBS staff member:

Actually, the system was written so that it doesn’t make any differentiation between active or inactive licenses. Why we don’t know. You can sure it will be changed before the next big promotion though.

This is certainly not what is expected from the marketing department of a public company. I appreciated the rare, honest reply but let’s have more transparency. Considering that Internet Brands and vBS promised vehemently that subsequent promotions will never be as generous as the current pre-sale, I wonder whether the apologies will be forgiven by customers. Even more interesting is that contract and consumer law suggest that a unilateral and non-obvious mistake in an offer is binding on the offeror – I wonder if this would make for an actionable case by customers with active licenses but expired maintenance subscriptions.

All of these issues could have been dealt with appropriately had vBS provided some prior notice to customers about imminent and important license changes. Management could have responded to and addressed important and overlooked customer concerns. In addition to a feeling of disrespect, customers were not provided with ample time to understand their options and make reasonable choices. For those who invested in multiple licenses, the huge cost of having to shell out $130 to 210 per license within two short weeks could present significant financial challenges. Notification to clients of these policy changes would be extremely difficult and require a lightning quick response for an explanation, approval and payment. Did anyone at Internet Brands solicit opinions from customers and address what would seem to be obvious customer concerns? Why the need for a high pressure two week pre-sale? Where was the dialogue? But more than just an inconvenience to customers, not having knowledge of the new policies would result in customers losing actual money which would find its way into the pockets of vBS and Internet Brands, as you’ll see shortly.

Part II: Justification of Pricing

The world of php development with visible, modifiable source code is an interesting, unique, creative community environment. Jelsoft grew exponentially because the founders and original employees, many of whom are unfortunately no longer with the company, understood the quid pro quo — provide a good product at a reasonable cost, care about your customers and you will generate enthusiasm and loyalty from a creative group of zealous adopters who will volunteer enhancements on their own time. It was commonplace to see customers donating free technical support and valuable vBulletin product enhancements for free, significantly increasing the value of the underlying forum product.

In general, annual maintenance fees and software updates will rarely extend beyond the 50-70% cost of the purchase price. Customers feel that they should have retain some tangible residual benefit as a product adopter and investor. This sentiment is probably more prevalent amongst a customer base consisting of a contributing, programming, developing online community. I am not sure that the new management team at Internet Brands that replaced most of the founding team fully understands and appreciates why Jelsoft grew into the juggernaut it has been and how to properly maintain the symbiotic relationship. An offer for a $130 upgrade or $285 new is not by itself an unfair price - I think it could be - but the timing required to pay and lack of equally fair treatment to customers across the board is a significant problem (e.g. the additional penalties to licensees with expired licenses and those wishing a bare forum upgrade.) But the two week pricing ultimatum and significant reduction of the value of purchased software licenses seemed to send one message to the loyal development community - there is not much perceived value in your being a patron and contributor and that we, the company, are in sole control of our own destiny.

From my deciphering of the terms (please correct me if this is wrong), forum owners were left with two choices: (i) pay a forum upgrade fee of $175 that is an astounding 90% of the cost of buying a new forum license outright ($195), or (b) within two weeks and without seeing the product or having an estimated release date, pay from $130 up to $210 based upon whether your annual maintenance subscription was active. If it wasn’t active and you didn’t know you should have renewed for $40 (how could you?), the “special offer” meant that you’d pay $5 less or $15 more than the price of buying a brand new forum! As a result of the Internet Brands pricing plan, the value of a customer’s vBulletin forum license version 3 plunged instantly from $180 to practically nothing. After all, who would pay much for a $180 license that now cost $175 just to upgrade if a new license cost just $195? $5 to save $15? The same went for the $250 upgrade fee post pre-sale, which is just $35 less than the $285 asking price. So what is the net result and why is this important? Because by making the customers $180 license worth almost nothing on the resale market, all sales by new customers will be new licenses purchased directly from Internet Brands. This might explain how Internet Brands is “setting sales records” in their press releases!

It was even worse for customers who purchased vBulletin 3 forum add-on products (such as blogs and project tools) from vBS, who apparently lost their $50+ investments, being entitled only to the same upgrade options to the vBulletin suite as a customer who purchased only the forum product. Customers who wanted or needed to just stay with version 3.x and continue receiving the upgrades are offered no $40 option at all of which I am aware – the only choice is to pay $175 – $210 to be forced to upgrade to the pre-sold but still unreleased version 4. It seems unconscionable to not inform a customer who bought version 3.x before the pre-sale of a need to pay an annual maintenance subscription for $40 or continue to offer this option. Numerous requests in the vBulletin forum to define actual company policy went unanswered.

In the forums, customers alleged consumer fraud – that the $310 price paid by customers occurred because vBS was selling product under old licensing terms when it knew that the sudden change to the new model would require an additional $130 investment. In my experience and to promote fairness, it is industry custom for software developers to provide free upgrades for license purchases made in close proximity to a release of a major upgrade – a grace period. To my knowledge vBS provided no such benefit. As a result, a customer who purchased vBulletin 3 in late Semptember for $180 would need to pay an additional $130 in the October pre-sale in order to be guaranteed receipt of all vBulletin 4 updates. $180 + $130 = $310.  With reasonable prior notice, that same customer might have waited a week to pay just $235 for a new license. Customers with expired annual maintenance subscriptions had expired could pay $40 and avoid newly created vBS penalties of an additional $20 – 80 for the upgrade.  I personally don’t see the cost “savings” – do you?

Part III: Successful Execution

As if the pricing confusion didn’t cause enough chaos, vBS didn’t show any vBulletin 4 product to customers who were expected to pay as much as $210 to upgrade. General Manager Ray Morgan responded to mounting complaints in the vBS customer forums about not seeing what had been allegedly in development for a year with his post on the night of October 21 (emphasis added):

We know everyone is anxious to see vB4 in action, so here it comes! We are planning to upgrade vBulletin.com to vB4 starting very early tomorrow morning. The plan is to put /forums/ into maintenance mode in the middle of the night (Pacific time) and be live again by mid-morning. Please note that this rollout will be an early beta release. By early, I mean really early, much earlier than betas have historically been rolled out on vb.com. It is not a release candidate, so there will be rough spots, which we’re still working on, but we are choosing to make this available now in order to give you the earliest possible view of what is being built.

So the product being sold in this limited pre-sale offer is in early stage development – I mean really early. Perhaps I’m understanding why there is no anticipated release date. The message continued:

Why didn’t you wait until the product was more “done”?
To give you the earliest possible view of the new vB4.

Why didn’t you wait until the CMS could be released along with Forum and Blog?
To give you the earliest possible view of the new vB4.

Why aren’t you delaying the release until feature _____ is implemented?
In the spirit of release early, release often, we want to get releases out to customers early, in order to get real-world feedback, and often, so that they can start benefiting from basic features as soon as they are available, with more advanced features following shortly after in subsequent releases.

See you in the morning!

So vBS was upgrading their own forum during pre-sale week to be nice to its customers, not to address mounting concerns of “seeing is believing.” Well, the vBS customer forum wasn’t back the following morning… nor the next morning after! During the extended downtime period, customers lampooned the new vBS Superman reference, best forum software URL, and a mysterious cartoon skunk that appeared on the “down for maintenance” page where the customer support forums had been. General manager, Ray Morgan, explained on the afternoon of October 24 why the customer support forums were inaccessible for over 24 hours (emphasis added):

We decided to take some extra time before bringing the forums back up after the upgrade to 4.0. Briefly, here’s what happened.

First, the good news: The installation of 4.0 itself actually went as planned. The upgrade to 4.0 Publishing Suite from the 3.8.4 base product was seamless, and that agrees with the success the alpha/beta team has seen up to this point. The issues we encountered were related to the fact that the instance of vB running on vBulletin.com has integration points with various business systems: administration, release management, ticket support, the product information site, and more. Cooler heads make better problem solvers, so we chose to investigate and solve the problems with the site offline rather than live to the world.

The issues we ran into are unique to our environment, and they are not things that would factor into a normal customer installation. We’re happy to have the forums live and stable. As noted in my announcement Wednesday night, this is a very early beta release, so there are still known bugs yet to be fixed before the gold. As you find bugs, you may report them here as usual. As we work through the beta cycle, we will periodically update this installation to include the latest bug fixes.

Got it – so this wise decision made during a limited pre-sale period included extended downtime because the cool, sharp heads thought it would be wise to show off the forums on their own live customer support forum and not on a testing site. They also provided no view of the back end administration or any of the extras included in the suite. I won’t elaborate on the extended confusion in the vBulletin customer support forums and allegations by customers that they were banned for criticizing the company’s handling of this entire upgrade experience.

Conclusions – So Where do we and vBS go from here?

As a long time owner of vBulletin software and contributor to the vBulletin customer forums and vBulletin.org modifications forum, I’m not sure where this once innovative product is headed. The product certainly seems far from being released, especially the suite. I can only imagine that this presale has placed great stress on the development team to officially release this very early beta product out the door as soon as possible, even with a multitude of issues (and upcoming explanations that this was done “to satisfy the customer and get a first exciting look.”)

It seems to me that many customers who chose to upgrade did so not because they had any faith in the upcoming product - they hoped to save the fleeting value of their investment in their vBulletin forum licenses by reselling the suite version later when the price rises to full retail. I wonder whether the flow of free forum modifications may slow to a trickle by angry contributing developers who feel unappreciated. I’ve been forced to look at several competing forum software packages, all of which are quite impressive – these include the commercial Invision Power Board Forum Suite and the free myBB, phpBB and Simple Machines Forums software. Customers have been vocal about their migration away from vBulletin – angry sites like vbTruth, vbFlames, vBull, and if names are correct, it seems this may have compelled vBS General Manager Ray Morgan to provide explanations on an external site, AdminAddict.

New customers may question whether to trust this new Internet Brands management team, who are not providing any reasonable estimates as to time periods for major version upgrades. During times of limited cash flow, will these paid number “version upgrades” arrive with greater frequency? It’s difficult to say. The old guard was beyond reproach. This new executive management team seems to be as confident as ever, believing that their power of market share will ultimately outlast any initial negative customer dissension. The licensees will whine and complain but, in the end, they will begrudgingly crawl back and pay the upgrade fees for the best forum software… ever. And they will donate their modifications for free en masse. This remains to be seen, especially during the present “global recession.” What we can say for sure is that this is certainly a good case study to follow, from a business and legal perspective, for companies seeking to change their software licensing models.