ow many times have you walked through your favorite electronics superstore, say Best Buy or CompUSA, looked at the software products sitting on the shelves and wondered ‘why them’? As a developer you probably personally know at least 50 people who’ve written better, more interesting software than is available on store shelves today. Maybe you’ve even written some marketable products yourself.
But there they are: Rows of neat boxes, ready to be plucked off the shelves by throngs of consumers, each purchase ringing a virtual cash register bell over the coffers of some other developers’ bank account. Why are they so lucky?
The answer boils down to two things: They have the right kind of product at the right time and they probably have a publishing partner who outlays all the cash and handles all the complex operational details in exchange for a chunk of the sales.
There are plenty of other ways that software gets from its creators to retail, all of which are discussed at length in Rick Chapman’s book, The Product Marketing Handbook for Software (Aegis Resources). Chapman, who is well known as the seminal figure on the subject of software marketing, says he always advises companies to sell directly whenever possible. But this method is only viable for companies valued at $10 million or larger. For small operations, you start with direct sales online and, when you’re doing strong sales there, it’s a good idea to choose a distribution partner to help you go to retail.
In fact, a publishing partner can make the process of taking a software product to retail exceedingly easy for a developer. A publisher knows the inner workings of the retail channel, of product marketing and development, has the supply chain prerequisites already in place, and is willing to be the conduit between the high-tech mindset of the developer and the low-tech world of the retail store.
Some publishers/distributors will front all the costs of getting your product into the stores, meaning no major capital investment for you and no third-party funding required. All you have to do is show up with a great product that everyone wants to buy. Others will agent you into the stores but expect you to front the cost of goods and manufacturing. The difference, of course, is how many of your precious sales dollars you’re willing to forego for the convenience (see page 4 for more on “Raking in the Cash“).
As you’ll soon learn, the world of retail software sales is a far cry from the tech-savvy circles that the average developer mingles in every day. In fact, the culture shock of selling to a mass consumer audience is usually reason enough for a developer to seek out a professional channel partner.
The good news: If you succeed in bringing software to retail, you can make anywhere from $350,000 to $2 million in the first year. The bad news: Whether you succeed or not has very little to do with the outright quality of your product.
Either way, this article will dispatch the fog that surrounds this not-so-mystical process, give you a clear idea of what factors will lead to success, and tell you how to get started if you think your product is ready for the shelves of Wal-Mart.
The Iowan Grandmother Litmus Test
“Software developers are not getting strong retail advice from anyone,” says Christina Seeyle, President and CEO of Avanquest, a San Mateo, CA-based software publishing and distribution company. “Retail is so far outside where they think they’re going to generate their revenue that they never think of it as a possibility. The thought that their product would ever get into Staples is too far out of their grasp.”
Seeyle says Avanquest evaluates about 30 new products every two weeks. Most of these are submitted by the manufacturer or developer using a simple form on its Web site. While only a very small number of those will actually make it to the store shelves, the feedback loop can be useful even for products that a publisher rejects. Just going through the process of having your product evaluated can give you valuable input about the marketplace and the commercial viability of your product.
“A lot of times what we provide is a consulting service,” says Seeyle, “where we say ‘this is not a solution for retail, but we always tell them why. It is kind of a harsh process and it certainly doesn’t mean that they’re not going to be successful with their product—it just means that it’s not appropriate for CompUSA or Best Buy.”
In other words, the product must be something that typical consumers living in Middle America would be able to understand that they need, yet be uncertain of how to find it elsewhere. Call it the Iowan grandmother test.
There are three essential factors to getting a retail green light:
- the right target customer
- heavy consumer demand for the technology segment
- demonstrated success at selling the same product online
The Right Target Customer
The product must be broad enough to belong on a retail shelf. “What we do is look to make sure the target market for that product is actually people who would walk through and shop for software at CompUSA,” says Seeyle.
“You have to think carefully about what kinds of products are interesting to retailers,” says Chapman. The short list, he says, includes: utilities, games, lifestyle products, lower-end development tools, lower-end graphics tools, and image manipulation tools. Distributors tend to specialize: Avanquest handles only utilities, reference, and personal productivity software for home and small office. Entertainment and education software are also popular consumer choices, but are usually handled by publishers who specialize in those segments, such as EA (Electronic Arts) for games.
Chapman recalls that at one time the retail marketplace supported over 100 word processors and a similarly large number of spreadsheets. The “throw-it-against the wall development process” that worked during the 80s—where dozens of ‘me-too’ software titles were released—is no longer viable, he explains. “You want to look for new niches and areas of opportunity. That’s something you want to think about before you sit down and spend three years of your life coding away.”
You also need to know which stores will carry it.
“Each retailer has its own target customer,” explains Seeyle. Avanquest tries to set appropriate developer expectations about where the product should be carried. “That’s one of the reasons you go to a publisher. Because we know what to pitch to Wal-Mart, what to pitch to Costco, what to pitch to Best Buy, and what to pitch to CompUSA or Staples.”
But that doesn’t mean that a perfect fit with any one retailer’s bailiwick is enough to get a publishing contract. Seeyle says Avanquest accepts only products that will—at a minimum—fit in at CompUSA, Fry’s Electronics, and Micro Center, as well as at least one of the office superstores.
Heavy Demand for the Segment
Retail is a good 6 to 8 months—and maybe more—behind the critical mass for so-called early adopters. For example, anti-spyware products have been an inarguable necessity for power users for more than a year, but according to Seeyle only one anti-spyware product is currently on store shelves. (Avanquest is about to double the offerings by releasing Lavasoft’s Adaware into retail.)
Ad-blocking is currently very popular, but the segment, Seeyle says, is flooded. “There just isn’t that much room on the shelves.”
Avanquest checks in regularly with retailers to get feedback about what’s selling well and what product segments store buyers are eager to see. Avanquest frequently proactively researches and recruits products they bring to market to fill a specific retail opportunity.
“We very rarely take a client that doesn’t already have some level of traction on the Web,” says Seeyle. And that traction can’t consist solely of high download figures either (see sidebar, “7 Tips on the Road to Retail“). Seeyle says she doesn’t care how many people have downloaded a product—the only customers she cares about are the ones who laid out cash to own it. You have to have a working revenue model on the Web, she says.
Chapman says it’s OK to track downloads if you’re using it to show a strong conversion to sales. “If you’re generating between $5,000 and $10,000 a month in sales, you’re at the threshold,” he says. “You’re showing steady demand.” But his No. 1 piece of advice to developers is: Understand that you must generate direct sales before attempting to break into retail or channel distribution.
Bottom line: You’ll have a much easier time finding a publisher to take you to retail if you’re already successfully selling product on the Internet..
A familiar contemporary business cliché advises us to “think outside the box,” But in retail you have to think about the box. Seeyle says packaging is so important in retail that the box—not the functionality or novelty of the product inside—is what will ultimately make or break its success. No amount of engineering wizardry or runtime sublimity will give you an edge in the store. In fact, Seeyle says retail buyers have zero interest in seeing the product actually work. “If you tried to pick up a computer and actually show it to them they would say ‘get the hell out of my office.’ They could not care less if it got five stars from whomever on the Web.”
|Figure 1. The Goodbye Girls: Inside each set of boxes is identical software. The boxes on the left were ignored by consumers, while the redesigned boxes on the right flew off the shelves. Go figure.
“When you’re working in retail it’s very much like selling cereal,” says Seeyle. “It’s a packaged good business. It’s important to have good packaging because you don’t have the luxury that you have on the Internet where you can read the reviews and sit and do comparisons. You have two seconds when they’re walking by the aisle to catch their eye and make them think this is an interesting product. You can’t underestimate how much value is added in that piece of the business.”
One of Avanquest’s clients, Cyberlink, sells products for burning DVDs, mostly through OEM relationships with PC manufacturers. But when the Taiwan-based company wanted to take the product to retail in the U.S., they insisted on using their own artwork for the box.
We released it in their packaging, says Seeyle, and it bombed, selling what she called “negative units.” “We released it in our packaging and it’s now selling great. Same exact product.” (See Figure 1 to see the difference in packaging before and after.)
Printing the boxes is a large part of the cost of going to retail. A publisher has to be able to print at least 10,000 boxes at once and they have to sell through that inventory within a few months to make it cost-effective. CDs, on the other hand, can be printed in smaller batches, which can sometimes make it easy to get small product updates and revs onto the store shelves—without changing the boxes.
The Endangered Box?
As we learned from the “dot-bomb” era, brick-and-mortar retail isn’t going anywhere—ever. But there’s a different debate currently being discussed in software marketing circles: Will retail stores always carry software?
“Some people believe shelfware is going to disappear and all software will be sold over the Internet,” said Chapman. “[Continued adoption of] broadband will facilitate that. On the other hand, there’s a tremendous impact and power in seeing collateral—an advertisement—which is what a box serves as.”
Chapman says those who believe that retail will continue to carry software believe that it will transform into a “cardboard and kiosks” method. Shelves will still carry cardboard product descriptions that play the same role as the boxes of today, but the software itself will be burned on demand at a kiosk.
Whether the future is kiosks and cardboard or online only, Chapman says it will be a long time before the change is made. “Right now there are still plenty of people that don’t have broadband and plenty of software sold through retail.”
Raking in the Cash
There are plenty of unseen ways that the publishing model saves headaches for software manufacturers. For example, each retailer has strict policies and requirements for invoicing and supply chain concerns. Getting to compliance on any one of those systems is a non-trivial task. Getting to compliance on all of them is potentially nightmarish.
The investment needed to get a product into just one store, says Seeyle, is at least $100,000 and that’s just for the cost of goods. Whether you ever see a return is another matter—retailers won’t pay you until the consumers pay them. And you’ll be expected to take return delivery on all unsold inventory.
A publisher will give you the inside information—the little retail tricks and cheats—that will help you maximize your earning power. For example, breaking the product up into a regular and deluxe version can increase sales. Similarly, freshening up the box can give already successful products an interim sales boost.
So how much of your booty do you have to kick down to the partner? It’s a chunk. Chapman says if you use the model where you, the manufacturer, pay the manufacturing costs, you can expect to keep 50 to 75 percent of the net revenue. However, if you choose a partner who fronts your expenses, your take drops to somewhere between 10 and 25 percent of net revenue. And with some of the big distributors, such as EA, Chapman points out, you also lose your marketing identity, as your products will be branded under their imprint.
But that doesn’t mean you won’t make money. A strong product, such as Tenebril Software’s GhostSurf Pro, will sell 17,000 to 20,000 units per month, which has earned its two-person staff about $2 million so far.
Success, of course, is not guaranteed, even with the help of a distributor. But your chances of losing money are certainly minimized. Publishers plan carefully to ensure they’ll at least break even. That means selling at least 50,000 units in the first year.
But if all goes well, and enough Iowans on their lunch hours just happen to be intrigued by the fancy box and the bullet points on the back, promising just the right thing at just the right time, the next time you go shopping you’ll be the one hearing phantom cash register bells.