It was exactly 180 days ago that PayPal froze all money in our account during our MacGraPhoto bundle sale. It was a very negative experience and would’ve been much worse if my elaborate blog post about this didn’t make it first page of reddit with more than 200 comments, first post on Hacker News and a mention on Daring Fireball. All the negative publicity that PayPal had received pushed them to promptly unfreeze my account, even without me asking again (for the 10th time).
What would have happened if they money wasn’t unfrozen?
First, it was a substantial amount. Moreover, most of it was money we had to transfer to our partners, so we would have needed to open our savings. Also, it would have put additional financial pressure on me, since I had left my day job only several months earlier and our family income was (and in fact, mostly still) lower than our expenses.
It wouldn’t have allowed us to participate in application acquisition opportunities and, most probably, we wouldn’t have acquired Blast. It could also limit our ability to pay to freelancers for graphics and other services.
In additional the limitation on my PayPal account also prohibited to use it as a personal account. I use it for personal and other business transactions from time to time. After all, PayPal is still the easiest way to transfer money between different people around the world.
As a business, we still use PayPal when it’s not possible to do otherwise. We no longer use PayPal as a payment processor on our site but FastSpring, which we now use, does offer PayPal as one of the payment methods. We still transfer money through PayPal to third parties and we sometimes get paid through PayPal when we participate in other sales channels, like other bundles.
For MacGraPhoto 2 which we plan later this year, we’ll probably go with FastSpring which allows to split the money between participants upon purchase, which will solve several problems at once – we won’t have to keep other people’s money and it will simplify accounting by reducing our gross income.
Last week Kosta and I attended an unconference related to business, startups and also some things unrelated to the above. We’ve been to several interesting lectures and activities and in general had a lot of fun. The last one was about starting business without much money.
The lecturer, who also teaches at the university where the event took place, told how not every business should be built in the “start up” way, i.e. venture money, immediate multinational presence etc. He proposed several alternatives on “starting down” and then growing up as needed:
- Start to work on the business while on the day job.
- Make the office in your home instead of in an expensive “start-up” location
- Use Skype instead of phone/cell
- Team with your friend or family instead of hiring an external CEO on a high salary
- Use (cheap, if possible) freelancer instead of hiring employees
While he was listing it we were folding our fingers for each “check”. I checked all five:
- I worked on Apparent Software (on ImageFramer) for three years while on my day job before I decided to switch to full-time. Kosta is still part-time in Apparent Software.
- My home is my office and no changes are planned. Well, about once a week Kosta’s home is our office.
- We use Skype In and Skype Out to connect to customers all over the world.
- Kosta is my friend of about 15 years and this adds a lot to the fun and to the trust.
- We’ve successfully used freelancers for graphics, web development, video production, and even programming.
Of course, these advices are not rocket science and the fact that I followed them is just because the financials of the business required finding affordable solutions. Still, it was both amusing and reassuring. I feel we’re on the right track.
Stay tuned to some exciting news in May.
All the best,
Dec 18 Update: This morning I was contacted by a PayPal manager from their fraud department who talked with me close to an hour. He went out of his way to apologize for their mishandling of my case. He told me that my account was initially so severely limited because in early October there were several attempted transfers that were marked as possible fraud. In fact, these attempts were my own attempts to fund the PayPal account using my own credit card by requesting money from myself. I needed the funds in order to perform a mass payment which is only possible if there is money in PayPal’s account. And I can’t fund my PayPal account from the bank in my country. I told the manager that these were my own attempts to fund the account and these are in fact my own credit cards and there was no attempted fraud there. But, according to him, when my account’s activity rose because of MacGraPhoto sale, the system took these funding attempts as additional fraud factor.
He later told me that all the representatives to whom I talked didn’t act professionally and didn’t perform the needed due diligence on my account to see that these funding attempts were one of the sources of the limitations. It made sense when we talked on the phone but now I’m not sure how it’s connected to their inability to understand that my business is legitimate. The original source of the limitation doesn’t explain their failure at investigating the case. He told me that it was very easy for him to see that the business was legitimate since I’m active on social media, have LinkedIn, Twitter and Facebook accounts, all of which are supporting my identity as Mac developer. Also, he admitted that it was easy to find info on MacGraPhoto promotion since it was quite well covered by the blogosphere and even an interview with me on Ars Technica about it.
Eventually, he lifted all limitation from my account and dismissed the October cases of my funding, which were marked as fraud. Of course, we’re very glad that our funds are now unfrozen but it still doesn’t clear PayPal of their mishandling of our case. For example, where the representative told me that she escalated my issue to the fraud department, she lied. There was no escalation. It looks like nobody has taken any serious look into whatever faxes that I sent because anyone with half a brain and 10 minutes of time could have found on the net all he wanted about me, my business, this specific sale and our partners in the bundle. I wrote it all on the first page of the fax, including the PayPal account emails of our partners, whom they could simply call.
End of Dec 18 Update. Original article below.
I’m running my Mac indie software business for more than 3 years now. For the first 2.5 years, all my sales went through Kagi and later I decided to switch to PayPal. The sales were not high, PayPal worked well and all was good.
This year, me and my partner Kosta decided to do some creative marketing for our picture framing application, ImageFramer. We decided to partner with several other developers of graphics software for the Mac and to sell all the software together, as a bundle, for 2 weeks. After months of preparations, negotiations and development, finally, MacGraPhoto bundle was launched on Nov 16.
We, at Apparent Software, were responsible for all the execution of the sale and part of it included handling all the money related issues, such as collecting the payments and distributing to other developers their shares. There were 6 other developers in addition to us. We corresponded over email, sent them a Terms and Conditions document and got their agreement to it by email.
We chose PayPal as our payment processor for several reasons but the main ones were the low fees, the fact that we already knew how to integrate it to the sales backend and that it should be easy to pay them and to affiliates. We used our regular PayPal account, which we used for regular sales. We didn’t expect what happened next.
The launch was successful and we were pleased with how the sales progressed in the first days. Three days into the sale I’ve got a phone call from PayPal and the person on the other side asked me about the nature of the spike in account activity. I explained that we had a 2-week sale, a special promotion and it looked like the call went fine.
The next day, without any warning, I get an email from PayPal that states, among other things:
We have observed activity in this account that is unusual or potentially
For your protection, we have limited access to your account until
additional security measures can be completed. We apologize for any
inconvenience this may cause.
I log into my PayPal account and what do I see? “For my protection” they have limited the ability of my account to withdraw or send money but most severely, they also disallowed the account to receive payments!
Frantically, I go to MacGraPhoto’s buy page, click buy and see a message “The seller can’t receive payments at this time”. At about the same time I get an email from a potential customer that says that he can’t buy the bundle. In the server log, I see other people trying to buy the bundle and leaving. Lost sales. Not good. Not good at all.
My PayPal’s page lists lots of things that I need to provide to PayPal regarding my personal identity and regarding the sales. Some requests are totally not relevant to the case or to our business.
Luckily, I have a partner in this business. He also has a personal PayPal account which he uses to buy things. We quickly convert it to a business account and modify the system to use it instead. Total downtime of our ability to sell was above an hour. Luckily, this happened when I was near the computer and not during the night or we’d have long hours of downtime and thousands of dollars in lost sales, possibly ruining the whole operation because of lost trust.
I quickly send some Photo ID of myself to PayPal and call their customer support. After fighting for some time with their voice routing system (I mostly lost) I finally got to an “agent” who verified my identity and then transferred my call to a “Limitation Specialist”.
We talked about the nature of the business. They wanted to see some shipping confirmation and tracking numbers. I explained that we’re selling downloadable software and the “shipment” is actually an email with license codes. I also explain that it’s a 2-week promotion where we bundled with some other developers for a mutual sale. She then asks me to fax to her signed agreements that they, the developers, allow me to sell their software. I tell her that we only have email correspondence and she says ok, fax it.
I prepare fax with our terms and conditions document, 6 email correspondences where other participants agree to the terms and also, in the first page, explain the whole issue of the bundle sale. Total of 26 pages. It takes almost a day to see the faxes in the system. Finally, on Nov 22 I get an email that they’ve received the documents.
I call back customer support, finally get another “limitations specialist” who checks the faxes and says me that it looks ok but I’ll have to wait to get my answers over the email in the next 48 hours.
After 24 hours I receive an email that includes:
- Please provide a letter of authority from the original copyright owner
and copy of the licensing agreement which states you have the authority to
duplicate and distribute the product.
That’s exactly what I sent in the faxes, though. All six developers agreed by an email and trusted us and our email conversation to collect thousands of dollars worth of their share of the sales. Apparently, what’s good for all sides of the deal is not good for PayPal, who are only the means to transfer the money.
I call back PayPal support and talk to another “specialist”. I explain the whole sale issue anew and tell that the first “specialist” told me that the faxes were ok. Now this one tells me that no, email doesn’t count, I’ll have to fax real signed papers. I explain that we didn’t do these. It doesn’t help.
In the process of our talk, I also learn that these “specialists” are not actually the people who decide to accept or reject the documents. They are only phone support personnel who understand a little more in the whole limitation process. And, it’s totally impossible to directly talk to the people who actually decide. So, it’s like a broken phone anyway.
I ask the person to reconsider our previous documents and tell him that we started to collect signatures (we indeed emailed the 6 developers by this time and asked them to print and sign a one-page, three sentences paper about the bundle). He said ok. Wait another day or two.
During the day we collect most of the signatures and then I receive another email from PayPal. The subject was new: “PayPal appeal denied”. The content:
"... After reviewing your account, we have decided to close it because of security issues.
We are making every effort to minimize any disruption to your business....
Option 1. If you owe refunds to any of your buyers, you can use the money
in your PayPal account to refund them....
Option 2. Money in your PayPal account will be held for 180 days. After 180
days, we'll email you information on how to receive your funds.
We regret any inconvenience this may cause"
So, now the money (most of which is not even ours but of our bundle members) is held for 6 months. Sure, they are “making every effort to minimize any disruption to your business”. Sure, no disruption at all.
I call PayPal again, get yet another “specialist” who tells me to fax the signed agreements when I have them. Next morning we finally get all the signatures, I prepare a fax and send it. A day later I get an email that they’ve received the documents. I call support again. Ok, got your documents. Wait up to “48 hours” again.
In the meantime, we’ve got really scared that the second account could be limited at any time as well, so as fast as we’ve got a bit of significant amount of money, we’d send it all to some of our 6 partners for a part of the sales.
I’ve got no response after 2 and even 3 days. I call again, another specialist tells me that since my account is kind of closed, she’ll escalate the issue to the fraud department. Expect a reply within 72 hours.
Within these 72 hours, Kosta’s PayPal account was also limited. But luckily for us, they still allowed the account to receive money, so at least we could continue to sell. There were still several days until the end of the sale. But we couldn’t pay to our partners now. And we didn’t have a 3rd PayPal account we could use for the sales. Had they also closed Kosta’s account to receive money, we’d have no choice but to close the bundle sale before its promised time, thus bearing a lot of financial and trust loss.
So Kosta started to work on lifting the limitation from his account. They asked him for a lot of things that they didn’t ask me. But at first, they didn’t ask him to send “license to sell” other software. In short, after about a week, lots of calls to support and faxes they actually removed the limitation from his account. This happened after the bundle sale finished and we needed to pay our partners soon. We still didn’t have all the money to pay them since a large sun lays frozen in my account.
Needless to say, I didn’t get any response, not after 72 hours nor after a week. I called support again and was told that they won’t respond me because my appeal was denied and they don’t reopen cases. I wondered why the previous 2 times that I called they did tell me to send the documents. What happened to the “escalation”? But talking to them was like talking to a brick wall. “PayPal decided that it doesn’t want to do any more business with you” was their standard response.
So, the bundle was a great and successful marketing experiment. We had to add from our own money to pay the developers and now won’t see our money from it until the end of May. Moreover, my PayPal account will stay forever limited and I won’t be able to use it for anything, even to pay for the services we use. And since my credit cards and bank account are also linked to this PayPal account, I can’t buy from any PayPal seller using them (I mean paying with a credit card through PayPal, without an account). I now either need to apply for a new credit card or don’t buy from people who only have PayPal as their payment option. And it’s not that I need another credit card in my life now only for this.
During one of my support calls, I asked the “specialist” if there was any way I could have prevented my account from being limited because of the higher transaction rate. For example, perhaps I could contact them and notify in advance of the upcoming sale. The answer was a definitive NO. You get it? I did nothing wrong. That’s just how their system works.
Even though Kosta’s PayPal account was “clean” for now we decided to leave PayPal as our payment processor at Apparent Software and moved to FastSpring. They have higher fees but at least they have great and personal customer service and we hope they won’t freeze our ability to do business without any reason, “for our protection”. We’ll also have to look for another solution for MacGraPhoto 2.
Summing this long story I want to say that I’m totally shocked about how PayPal treats its customers. Sellers are those who pay the fees and who make PayPal the business it is. I won’t be using PayPal to sell anything from now. They have grown too big to be efficient and caring for their customers. Quick to make totally disruptive decisions and to dismiss legitimate businesses without really taking a look at what it is.
They took the liberty to totally halt our business, to cause lots of lost sales and a major cash flow blow only because we got successful with one promotion, after being their customers for a long time. Right, they “regret any inconvenience this may cause”. They are “making every effort to minimize any disruption to your business”.
If you’re selling anything and use PayPal as your only payment option, I urge you to reconsider. They can cut your oxygen supply right at peak of your success, of course “for your own protection”.
Do you use DMG to distribute your software for download?
Do you create it using a script, by creating a template DMG and then replacing its content upon release?
If you do, which I fully endorse, and you’ve created your template in Finder on Snow Leopard, read below.
In the last couple of days before the ininitial release of Cashculator to the public I’ve been struggling with the DMG creating process. I thought I’d already mastered it. After all, I’ve been already doing it with ImageFramer. So I prepared my template, copied the .DS_Store file from it (I used this process with ImageFramer) and script handled it all fine for me. I look at the final opened DMG and I see the following image (which is what I indended it to be):
Cashculator DMG background
I send it to the server and let my partner Kosta check it on his machine. He’s using Leopard and not the Snowy kind. He send me back the following image, which is far from what I thought it to be:
Cashculator DMG on Leopard
Not good. So I tried this way and that way. I even moved to another system, where I first create the DMG and use the DMG itself as the template, without exracting .DS_Store first. Nothing helped on Leopard.
So we met and he brought the Leopard machine with him. I open the DMG, press Cmd-J and see that Finder thinks there’s no backgrond image and icon sizes are different.
After some research I came to the conclusion that DMGs created on Snow Leopard don’t show the same at all on Leopard. Frightened, I also tested my ImageFramer releases, which also sport a new background since the release of Snow Leopard. To my shock, it was also totally wrong on Leopard. That’s not how I wanted to convey the first impression of ImageFramer to potential customers.
The solution, of course, was to create the DMG on Leopard and use it as template instead. I ran the new template through my scripts and reopened the final DMG on Leopard to check. It was fine. Finally.
Today I did the same with ImageFramer‘s DMG. For some reason, the one from Leopard showed without background on my Snow Leopard machine. I only added the background again and saved the DMG. It worked fine on Leopard too.
That’s it. So, if you use a similar technique for creating DMG, check them on Leopard and on Snow Leopard before shipping to avoid later embarrassment.
So far MacHeist has sold around 43000 bundles. Suppose it sells 60000 in the end. It is 60K copies of software at 95% discount. MacHeist is one of the best marketed software sales on the internet, surely as far as bundles go.
It looks like it provides quite good value for the money, even though the customers don’t usually need all the programs. But one can often pick the bundle for just or 3 of them. I personally bought 2 of the 3 bundles.
My point is, here it is – the best marketing effort on the net and still it sells only 50-60k copies. Not that it’s bad for 10 days of sales. I’d even be happy to sell as many copies of our similarly priced ImageFramer in a much longer time frame.
But given that most Indie Mac developers (micro ISVs) are not that good with marketing as MacHeist what are our chances to sell enough copies of our software, without such deep discounts, in all of our product’s lifetime?
Am I too pessimistic?
The research below was done by Kosta, who recently joined Apparent Software to lead business development.
Having recently entered the world of MicroISV for Mac, one of the first things I wanted to know was what are the characteristics and types of ISV, what are the main groups that they fall in etc. Basically, I wanted a market research. To my surprise, I found nothing satisfactory of that kind.
As a good catchphrase goes – you want to get something done, you’d better do it yourself – and so I did ☺
This is summary of my analysis based on randomly-selected several dozens of MicroISV developing software for Mac OS X platform. I apologize in advance if I offend anyone but I focused on regular Mac applications and excluded plug-in developers and game developers from this research. Both of these constitute different groups and deserve another detailed research that can be hopefully done by another volunteer ☺.
In order to cluster the ISVs, I collected several parameters for each examined ISV:
- What kind of applications does it develop?
- Specialized / specific applications that would interest only a small niche (for example, applications that add a watermark to images or print invoices )
- Generic applications, designed for the general public (like productivity applications, generic image-editing applications etc)
- Both specific and generic applications
- Applications quantity – how many applications did each ISV develop
- Application categories quantity. All applications can be usually divided into well-known categories: personal productivity, utilities, imaging, internet applications etc. I checked for each ISV how many of these categories does it span.
- Application price
Having collected all this data, I was ready to cluster the ISVs – create meaningful homogeneous groups having similar characteristics. Having these groups will help us better understand what kind of ISVs are there and what the differences between different types are.
But before presenting the clusters, let me first build some suspense by listing several generic conclusions based on the research:
- Most ISVs create generic products or both generic and specific products. Only 21% of the ISV develop only specific products.
- About half of the ISVs develop applications in 1 category only. That includes ISVs who develop specific products (the 21% shown above) and ISVs who have 1-3 generic applications.
- In terms of application quantity – there is almost no middle-ground: either you develop 1-3 applications, or you are in 6 to 9 applications league.
- Price wasn’t determined by the ISV type, but by application type. Only one exception to his rule – the only ISVs providing ALL applications for free have 2-3 applications in 1 category only.
And now – for the winners!
What are final conclusions of the research?
What are the clusters that MicroISVs can be broken into?
Necessary disclaimer for these of you less familiar with marketing or descriptive statistics: there are always border-line or unique cases not falling into any cluster – but these are the exceptions that only underline the general rule.
- Small fry (49%): Most of MicroISVs fall into this category. They have several generic or both generic and specialized applications, belonging to 1-2 categories. They probably lack the resources or the will to grow and become a Generizer or a Micro-monster, but they may still become one.
- Generizers (16%): These ISV have larger amount of applications (5-6), all of them generic. All applications are usually in 1-2 categories, like utilities, web or productivity. These ISV may still grow to become Micro-Monsters.
- Micro-Monsters (16%): The last stage of Micro-ISV development – these companies have it all. They have many (8-9) applications spanning several categories, some specific and some generic.
- Specializers (15%): ISVs that have few specific applications, all of them usually in one category. This is usually the case of 1-man show that has a personal interest in that particular category, and doesn’t want to expand beyond this category. This ISV will rarely turn into another category, and will expand by slowly creating additional specific applications in the same category.
How can your ISV benefit from the analysis you’ve just read?
My take is that each ISV owner should ask himself the following questions:
- What group does his ISV fall in?
- Are you satisfied with belonging to that group?
If the answer to the previous question was “No”, ask yourself
- Who do you want to be when you grow up?
- What is stopping you from getting there?
And make a long-range plan how and when DO you get there!