2016 brought a lot of change in the WordPress product space, and lots more is coming in 2017.
Companies are getting bigger and more mature, hosts are pushing their weight around with acquisitions, and new players are entering the game. Established products are still doing well, but new products by old companies are gaining momentum. Many plugin authors have their eyes on SaaS for 2017, because of it’s superior business model.
GoDaddy acquired ManageWP and WP Curve, and these won’t likely be the last.
Hosts are getting interested in products that can add value to their infrastructure, and offer a differentiation from their competitors. ManageWP’s new dashboard fits the bill, and WP Curve brings a team that can help GoDaddy bring in extra revenue through custom development.
There was a great interview at Publish about this topic between Steve Lee and Josh Strebel. The main takeaway I got from that is getting acquired can be very different than what you see in the media.
It takes a lot of time, effort, and money to make an acquisition happen. Many of the valuations you see in larger transactions (i.e. Instagram) don’t apply to smaller companies. The valuations mentioned for some of GoDaddy’s purchases were 1.x. Meaning 1 year of revenue times 1.x. That would be a nice payday for a founder, but it doesn’t make much sense unless you are doing a lot of revenue.
Even a 1M/yr company would be a disappointing payday in my opinion. Let’s say you get 1.2x revenue, some cash and some stock, and you are a 50% partner. You end up with around $500K, minus taxes it’s more like $325k. That would be nice if you really want out, but you aren’t going to retire on $325k.
Hosts as Competitors
Hosts like GoDaddy have a lot more money to throw around than the average WordPress product company, and with their entry into this space, they become a competitor.
The more features that hosts add to their platform, the less room there will be for WordPress products that do the same thing. For example, if your host has nightly backups, do you really need a backup plugin?
If your host offers free security scanning and cleanup, do you need to pay for a separate product that does the same thing?
You could argue that the individual products are better at their job than the host, and they can certainly retain some customers because of that. The point is that if you have a product that works well with hosting infrastructure, you should be aware of this threat.
Will your plugin get acquired?
Another topic discussed at Publish was that plugins are not in a good position to be acquired. Since they are all GPL code, it’s difficult to explain to a buyer what they are paying for. Acquiring a company that owns several products makes sense, but if you have a small plugin business I wouldn’t hold your breath for an offer.
ManageWP has a proprietary SaaS, and it’s easy to see how that fits into GoDaddy’s business model. It’s much easier to sell a SaaS product, it’s something tangible and predictable.
Many product creators have their eyes on SaaS for 2017, but it’s not an attempt to get acquired.
SaaS All the Things
AppPresser is moving to a SaaS model in 2017 with AppPresser 3, and I know of at least 2 other popular products moving that direction. There will most likely be many more than that.
Why? Because a SaaS model is superior in many ways, including customer experience and revenue model.
The customer experience is a huge one. A SaaS allows customers to experience your product without having to setup their own WordPress site. This is huge.
Squarespace and Shopify are popular because they are so easy to use. We need to bring this type of experience to WordPress.
For a long time WordPress plugins have been all about “build X inside WordPress.” You pay $29/mo for accounting software? I’ll make a plugin that does it for $49 one-time payment, and you host it yourself! We’ve done the same for a CRM, a/b testing, invoicing, eCommerce, and even mobile apps.
The problem is that building anything and everything into WordPress is not always a good thing. If you have a tiny business and a low-traffic site, it’s cool to put everything in WordPress. A business that has thousands of clients, invoices, products, and sales will not have a good experience doing everything in WordPress.
I’m not knocking any single product, just the idea that building every feature a business needs into WordPress is a good thing. I would rather use an external SaaS for almost everything not directly related to site content, such as accounting, a/b testing, and anything related to email. A SaaS can provide a superior experience because it is focused on one thing, and it does it really well.
The revenue models are superior in a SaaS because we have the option of monthly billing. You can’t do that with a plugin. I don’t think that monthly billing is the holy grail, in fact if you do it wrong you will lose money.
For example, if I divided up our Agency Bundle payment of $499 to a monthly payment of $41.50, my lifetime customer value might go down. This would be due to the fact that most people won’t make 12 or more payments because of churn.
The biggest appeal is not the monthly billing, but the fact that you are providing a service, and customers will lose it if they stop paying. It should increase renewal rates, which are notoriously low in the WordPress plugin space.
Innovate or Die
Some companies, such as iThemes, have been around for 9 years.
As the businesses in our space mature, they are not coasting on the success of older products, they are innovating new ones. For example, BackupBuddy has long been iThemes’ flagship product, but they have continued to drive growth with Sync and Security.
Pippin Williamson of Easy Digital Downloads has been involved with two new projects, AffiliateWP and Restrict Content Pro. These two projects combined are now more profitable than Easy Digital Downloads, which he has publicly noted is not profitable right now. (EDD is still a very healthy company, and they plan to be profitable in 2017.)
It’s not easy to create more than one successful product, and even guys like Cory Miller and Pippin Williamson have failures. Innovation is key, it truly seems like if you aren’t growing, you’re dying.
I think the innovation in 2017 is going to be in moving towards SaaS. We seem to be running out of broad product categories that don’t have a couple dominant players, so we will have to get more creative within those categories.
What trends do you foresee in 2017? Let me know in the comments.
5 responses to “2016 WordPress Business Review”
Very much enjoyed the article. It is interesting to see the rise in SaaS, and I clearly see the benefit to WP product creators (it’s a route we plan to go, in some capacity, in the future).
Where I think creators need to be *somewhat* careful is in the assumption that the customer prefers SaaS as well. With everything going the route of “pay us forever until you no longer want to use our software” (i.e. SaaS) it will be interesting to see if there is a ‘rebound’ of sorts… the segment of users who just want a solution without having to keep track of yet another monthly payment. The extent of this would of course depend on the industry & target market, but in some cases it could be large enough for businesses to compete in.
Hey Justin, I see what you are saying, and I think it’s true for certain niches. I really don’t see a ‘SaaS rebound’ happening in any broader sense, because it’s been around for at least 10-15 years already. There will always be challenges to self-hosting that people don’t realize until they try to scale, in which case SaaS is almost always better (in my experience).
A business with any type of reasonable revenue will not bat an eyelash at paying $50-100/month for a valuable service, and I don’t think this will change. Maybe in the B2C market? I’m not sure.
$50 to $100 / month for a valuable service is one thing, but it’s getting to the point where everything is going that direction, and now you have 20 or 30 services, all snatching their monthly fees from your account. The backlash is there, trust me. It just hasn’t grown enough to be noticeable to you yet. But I’ve seen conversations popup in forums and groups with grumblings about yet another company going SAAS. Users cannot sustain endless monthly fees for everything. It’s just not doable.
I see your point Donna, and I can certainly see people getting much more selective who they will pay month after month. I think that encourages SaaS companies to build more value into their products, and helps the consumer. They are competing for your money every month, not just one time.
It also depends on the customer, many companies wouldn’t balk at having 20-30 subscriptions if they are valuable to their business. My business pays for at least 10, I could easily see us getting more, and we are a small company.
If there is a backlash, WordPress plugin developers will be poised to take advantage of that 🙂
@Scott, nice post. I also enjoyed http://scottbolinger.com/2015-wordpress-revenue-statistics/
Beyond the success of WooCommerce (and Gravity Forms), have you heard of any companies leveraging their proprietary WP plugin code and the WP framework to build enterprise apps (CRM, LMS, ERP)?
In other words, using the WP architecture configured to allow for Enterprise-class functions (security, legacy data migration, real-time data exchange, data cleaning, centralization of reporting) to be delivered to clients. We began with the Sensei LMS plugin, have built about a dozen extensions and are having success.