Today I received an update from Andrew Erlichson, Phanfare founder and CEO. I get the impression that we had the same conversation by phone that he had with several other lifetime subscribers. In short, Phanfare needed to sell. They needed to partner with a larger company with the finance, marketing, and strategy resources to take an excellent product and make it profitable. If Phanfare had not arranged the buy out by Carbonite it is likely that they would have shuttered. That would have left all their customers without service, their data, or a refund. So selling to Carbonite was not an easy decision, and it was not a good solution, but it was the best Mr. Erlichson could do for all of Phanfare’s customers. Standard annual subscribers should see no change in service or pricing . And although lifetime subscribers are not getting a good deal, they can get three more years at no additional charge and most importantly this is a plan that will keep their data secure for the foreseeable future. For those not satisfied with this arrangement, Mr. Erlichson is now being totally clear that customers who so desire can get a full refund of their $299.95, original purchase price per the 2006 Terms of Service:
Phanfare may terminate a lifetime subscription at any time by returning the photos and videos to you and returning your original purchase price, currently $299.95.
Some people will quibble that the 2006 TOS also include a provision “to receive your photos and video back on DVD once at no cost”. Mr. Erlichson has been clear that they will not be burning and mailing DVDs. Users will be able to receive their data “via electronic download with a new program we are writing”. I would argue that it is better to download your files yourself, to a PC or attached harddrive anyhow. You will get your files sooner–it would take weeks to burn and mail all the requested DVDs. Also downloading to a PC or attached HD will allow you to have all your files in one place. The average Phanfare user would require at least two or three DVDs. Then you get in the business of searching through multiple DVDs looking for a particular photo. Better to download them yourself and have them all in one place. Personally, I would not wait for this downloader program to arrive and you don’t have to. If you are Windows user you can download your files today using Mirgatr.
One final thought: Mr. Erlichson requests that we not be too hard on Carbonite. And I don’t really intend to be hard on them here, more than to say that it really would not have been that difficult for Carbonite to have maintained the lifetime subscriber program and associate the program to “annual revenue” which is their practice. All they would have had to do as part of the buy out is place a certain sum of money in an annuity that would pay out according to their revenue requirement. The annuity would not have to be perpetual, as lifetime subscribers will ultimately die and the membership is not transferable. Would this quantity equal the $250,000 dollars we all paid to Phanfare five or more years ago? I don’t know. Because I don’t know what their revenue requirement is nor can I assume how long this annuity should last. But clearly there is a sum of money that could be annuitized and reasonably be expected to meet their revenue requirement. They opted to not do this. Why? Because it was an additional expense and it was slightly more complicated. Now is the convenient time to make a clean break from the lifetime program. I am wondering if it was worth it. Carbonite is in the process of issuing an initial public offering aimed at raising $100 million. Negative press could impact their final valuation. Making good by lifetime subscribers would surely have cost less than $500,000. Could this ill will affect their final IPO take by half a percentage point? I doubt it. Because, under the terms of the buy out, this presents absolutely no legal or financial liability for Carbonite. However, could negative press raise questions about the character of Carbonite’s leadership which would affect the final valuation of the IPO? Perhaps. So, why take the risk? Certainly they don’t want this story to go far. And I get the impression that Andrew Erlichson’s first official duty at Carbonite is to quiet the chatter about this lifetime program snafu and fast. And I hope he does, otherwise they could be in for a rough transition with Carbonite asking why they bought this thing in the first place.
At this point Mr. Erlichson is clearly left holding the bag as the only one responsible for satisfying the legitimate expectations of lifetime subscribers. I think that is exactly what he is now doing. As in 2008, it would have been better if they could have more accurately predicted lifetime subscriber reaction to the change. But also as in 2008, they are now listening to their customers and making their best effort to right the situation.
As for me, I am taking Mr. Erlichson up on his offer to refund my $299. In this way, my “credit” won’t be married to Phanfare, I won’t get locked into three years of service, and I can take my photos elsewhere when and if I please. In that vein, I am seriously checking out SmugMug right now, as it appears to offer near feature-for-feature parity with Phanfare at a $40 per year discount. SmugMug offers competitive upgrades for Flickr users and the rumor is they do the same for Phanfare users with discount code “PHANFARE”. I’m not sure if this is 20 or 50%, but either way not bad since the service is already 40% cheaper. UPDATE: The “PHANFARE” code does not work, but I contacted SmugMug support and they gave me a current coupon code for 50% off my first year. I cannot share the code here, but I imagine if you contact SmugMug directly they would offer you the same discount. For a bit more detail about moving to SmugMug, expect another post to that effect soon. In the mean time, this comment at the “Phanfare Suck Again” post does have a bit more information.
Ultimately, I have to say that I’ve loved being a Phanfare customer. I love the product, particularly the web, desktop, and iphone clients. I also think Carbonite is a fantastic company with a solid product. I think that this partnership will be good for Phanfare. These guys are just people and I suspect they’ve learned something from this mess. I wish Phanfare and Carbonite the best going forward.
Here is the complete “Additional Explanation” message from Phanfare founder and CEO Andrew Erlichson:
I have received a tremendous amount of feedback about our ending the Lifetime Program in the past few days and I want to share some additional thoughts of explanation with you all.
There are about 850 Lifetime customers. Phanfare was a small company and never grew to very large size. This transaction was modest in size, although the details remain confidential.
It became clear that we needed a larger partner to survive long term and that is why we began the process of selling the business.
Although we did try to negotiate to have Carbonite take on the Lifetime Program intact, the final agreement was that Lifetime customers would be offered a credit of their original purchase price of $299.95 by Carbonite and offered annual memberships.
Had we not needed to sell the company, we would have certainly continued the Lifetime Program indefinitely.
I wrote the Lifetime Program terms myself and I specifically created a way for us to end the Lifetime Program if we needed to in a scenario such as this. My goal was to protect Lifetime customers in a transaction from arbitrary action by a successor while bounding the liability of ending the program so as not to create a poison pill.
The agreement was that if we wanted to end the Lifetime Program at the time of an acquisition, we would return photos and videos and purchase price, which we proposed doing in terms of a credit. This agreement can be found in the Internet Archives.
The result will be that Lifetime customers will have received about seven years of service for their original fee and get continuity of service.
I am very sorry that we could not do better than this for the Lifetime customers. Many of you are personal friends and and I have come to know many more.
The Phanfare service is continuing unchanged under Carbonite and I will be running the Phanfare division as VP, Phanfare, reporting to Carbonite’s CEO, David Friend.
If you are certain that you do not want to continue at all with us, please write me and we will refund your original purchase price. This refund will come not from Carbonite, but from what remains of Phanfare, Inc. It will essentially be paid for by me, my employees and my shareholders. In that case, we will also return your photos and videos to you via electronic download with a new program we are writing.
Again my sincere apologies that we did not manage to create a better outcome for Lifetime subscribers.
A final thought. Don’t be too hard on Carbonite in this. The Lifetime Program is not profitable and while we feel a strong commitment to doing right by all of you, Carbonite is fairly looking after their own customers and shareholders and not taking on something that they don’t feel makes any business sense. I respect that decision and hold no ill will about it.
Founder & CEO