The Iniquities of the Selfish

Tuesday, 12 December 2006

On Monday, MacHeist¹ released the software bundle at the heart of their promotion, under the guise of “The Week of the Independent Mac Developer”:

That’s why we’re declaring this The Week of the Independent Mac Developer, and in an effort to spread the word about these hidden gems, we’ve put together a collection of some of the best darn software available on the Mac for a steeply discounted $49.

Showered with awards and accolades.

To provide the best possible introduction to Mac shareware applications possible, we’ve assembled a diverse lineup of ten Mac applications that together have received multiple Apple Design Awards, O’Reilly Innovator awards, Macworld Eddy’s, and MacMinute Showtime awards.

First, there’s something silly about calling these apps “hidden gems” in one paragraph, and then immediately proclaiming that the apps have been “showered with awards and accolades”. I mean, come on, Delicious Library and TextMate are not hidden gems. What makes the MacHeist bundle notable (compared to, say, MacZot) are the quality and renown of the apps.

But that silliness plays into what’s galling about MacHeist, which is their framing of their promotion as some sort of community benefit project. E.g. this forum post from MacHeist leader Phill Ryu:

So as we near the end of the event, I want to share with you guys a little bit about my personal motivations behind MacHeist, and why I and the other members of the team here have been spending the last few months of our lives on this project.

In short, it’s about doing what we can to support the community of independent Mac developers and, in turn, the many users of these freeware and shareware products. This community has given me and the others involved a lot over the years. Friends, jobs, and some truly amazing opportunities.

If you didn’t know any better, judging only from MacHeist’s promotional copy and statements such as Ryu’s, you might think that most of the profits from the bundle were going to the developers of the bundled applications. Not so. Most of the proceeds are going to MacHeist, and the more bundles they sell, the more disproportionate MacHeist’s share of the profit will get.

The deals that MacHeist has arranged with the developers participating in the bundle are not publicly available. Gus Mueller, the developer behind Flying Meat Software, wrote (in a comment) on his weblog about the deal he was offered for a spot in the bundle for VoodooPad:

I turned it down because it was a horrible deal for me. At the time, the deal was $5K to the developer for the rights to sell the app for a full week. I tried to negotiate for a percentage and was told there was no negotiating, the deal was the same for everyone across the board.

With information from a few other sources, I’m nearly certain that MacHeist is paying every developer — with what I presume is the exception of iClip developer John Casasanta, who is one of Ryu’s partners on the MacHeist team itself — a flat fee. Most of the developers are getting somewhere around the $5,000 that Mueller was offered. According to one source, the participating developers were also strongly encouraged not to share the details of their MacHeist deals with each other or the public.

[Update: Oliver Breidenbach, developer of FotoMagico, acknowledges in this comment that they were paid a flat fee. Although he doesn’t specify the exact amount, he implies in the post that $5,000 is in the ballpark.]

Some apps in the bundle, however, are more equal than others. My sources claim that Delicious Monster is getting somewhere between $10,000 and $15,000. I presume TextMate developer Allan Odgaard, as the author of the other anchor app in the bundle, is also getting a larger share, but I have no specific information about his deal.

I asked Phill Ryu via email whether these figures were accurate, and separately, whether developers were being paid a flat fee or a royalty; he declined to comment.

Mueller was right to ask for a percentage rather than a flat fee; the economics of paying the developers a flat fee in exchange for an unlimited number of licenses tilt grossly in the favor of the MacHeist team.

One clever aspect of the MacHeist bundle promotion is that the last two apps in the bundle, NewsFire and TextMate, are “locked” until certain revenue levels are reached — NewsFire when gross revenue reaches $200,000; for TextMate, $400,000.

That’s not exactly how the goals are advertised, though. In another deft marketing move, the plateaus are described in terms of the 25-percent-of-gross-revenue charity contributions. That is not to say the idea of donating 25 percent of the gross revenue to charity is itself only a marketing tactic — only that using it, rather than gross revenue or unit sales, as the metric for unlocking NewsFire and TextMate is a clever diversion. Who could root against or resent charity?

If and when these revenue levels are reached, everyone who has purchased the MacHeist bundle gets those apps, too. So, because everyone has a vested interest in tracking the current sales figures, MacHeist is publishing their sales numbers live. As of this writing, it’s about 3,000 bundles sold, for $132,000 in gross revenue.²

Consider how that money would be divided if sales stopped at this moment. 25 percent goes to charity, leaving $100,000. Let’s assume (a very generous) $30,000 in expenses for advertising (e.g. on Macworld.com) and the development of MacHeist’s web site and puzzles. Let’s assume Delicious Monster will be paid $12,500 (the halfway point of the $10-15K estimate from my sources), and that the remaining seven “unlocked” developers will each be paid $6,000. Sales have not reached the plateaus for NewsFire or TextMate, so we’ll assume those developers would receive nothing. (I believe these estimates are accurate, but if they’re not, I would welcome specific information from anyone involved in MacHeist.)

That adds up to $54,500 in payments to the participating developers, leaving $14,500 for Phill Ryu and his partners at MacHeist. I.e. MacHeist would keep a somewhat reasonable 20 percent share of the total profit; each individual developer would get (on average) about 10 percent.

Respectable agents or managers take no more than a 15 percent cut of their clients’ revenue, and usually not more than 10 percent. That’s true in sports, it’s true for authors, and it’s true for entertainers. MacHeist’s role isn’t that of an agent or manager; the closest traditional description I can think of is that of a promoter. But the basic analogy holds, in that they’re ostensibly looking after the interests of “the talent”; a 10-15 percent cut of the profits sounds about right to me — which in the case of MacHeist’s 8-10 member ensemble of developers would make MacHeist’s fair share roughly equivalent to that of one of the developers.

But those numbers are based on the sales numbers at this writing, two days into a weeklong promotion. MacHeist is on pace to take a far larger share of the actual profits than the average developer in their bundle. Consider the distribution of profits when and if sales meet the levels for unlocking NewsFire and TextMate:

                                Current  Newsfire  TextMate
                                -------  --------  --------
Total Revenue:                 $132,000  $200,000  $400,000
Total Raised for Charity:        33,000    50,000   100,000
Post-Charity Revenue:            99,000   150,000   300,000
Est. Other Expenses:             30,000    30,000    30,000
Total Profit:                    69,000   120,000   270,000

Est. Total Payments to Dev's:   $54,500   $67,000   $79,500
Est. MacHeist Profit:            14,500    53,000   190,500

MacHeist Profit Share (%):           21        44        71
Developers' Combined Profit Share:   79        56        29
Developers' Ind. Average Share:      10         6         3

(To compute this table, I estimated that David Watanabe (NewsFire) and Allan Odgaard would be getting the same “more equal” $12,500 payment that I believe Delicious Monster is getting. I have no information to back this guess up; if I had to wager I’d bet they’re making less, but it seems more fair to guess high than low. I also treated John Casasanta as a regular developer.)

What this table makes clear is that because these payments are for a flat fee, as sales goes up, additional profits all go to the MacHeist organizers. If sales reach the level to unlock TextMate, MacHeist will keep more than 70 percent of the total profit, and the average individual developer will get less than 3 percent. I repeat: 70 percent of the profit would go to the MacHeist team — almost 25 times more money than the average profit of a developer in the bundle, and more than double the profit of all 10 developers combined.

Consider this: How much worse for one of these developers would it be for you to pirate a copy of their app than to obtain a legitimate license through this bundle? They don’t get any extra money either way, because they’re getting the same flat payment from MacHeist whether you buy the bundle or not. And if you do buy the bundle, they’re on the hook for providing you with technical support.

Update, Sunday 17 December 2006: With a few hours left in the promotion, MacHeist is reporting over 14,000 units sold and total revenue of about $640,000. I currently estimate they’re paying a grand total of $70,000 or less to the participating developers. Again, with an estimated $30,000 in additional costs, that leaves the MacHeist team with about $385,000 in profit, which is 85 percent of the total profits from the promotion. The average developer received about 1.5 percent of the profit.

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My problem with MacHeist is that they’re couching this bundle as a service to the indie developer community, when the truth is that they stand to make a significant amount of money while paying comparatively little to the very developers whose interests they claim to be serving.

My idea of a fair distribution would be to pay each participating developer a share of the profits, and for the MacHeist team to take a share equivalent to one of the developers. Or, for the MacHeist team to take an agent-like 10-15 percent of the amount paid to each developer. (With 9 or 10 developers in the ensemble, however, it works out about the same either way.)

It’s completely fair for the more popular and expensive apps in the bundle to garner higher shares. So for example, they could divide the profits into 11 shares, with Delicious Monster and the MacHeist team each taking two shares, and the remaining developers one share apiece. With a deal like that and $150,000 in post-charitable-contribution revenue (the level to unlock NewsFire), each share would be worth about $12,000.

At $300,000 in post-charity revenue (the TextMate unlocking level), each share would be worth about $25,000, with Delicious Monster and the MacHeist team taking two shares apiece. Such an arrangement would be significantly more lucrative for every participating developer — and I’m guessing it’s the sort of arrangement that many of the people who have already bought the bundle think is actually the case.

MacHeist’s organizers and defenders are arguing that no one forced the participating developers to agree to their terms, and that these developers are in fact happy with how the promotion is going, and that the users who’ve purchased the bundle are delighted with the price. But none of these things are in dispute.

What’s in dispute is whether the money is being distributed equitably. Just because someone is satisfied with a bad deal doesn’t mean it isn’t a bad deal.