An Economist’s Look: Competition in the WordPress Theme Marketplace
I was doing some writing for Siobhan recently, and one of the topics I was covering was WordPress theme shops, and the economy that’s built up around them.
As a former Economics student, I got thinking about how the Premium Theme marketplace has built up from those early days of Revolution Themes over the last couple of years; how the market is structured and what that market structure means for consumers.
That thought process has lead me to this post, where I’m going to run you through the current state of the marketplace, what impact that has and what that means for consumers.
Before we start, a little bit of Economics background: we’ll be looking at things like barriers to entry, which are just any elements of the market which make entry by new businesses difficult, economies of scale which are benefits enjoyed by larger businesses and the aforementioned market structures which is, well, how the market is structured.
Those structures might be things like a monopoly, oligopoly or perfect competition. Take note of these fancy words, we’ll be using them again later!
Anyone can make a website, right?
At a glance the structure of the theme marketplace looks pretty straightforward: anyone can set up a website, so barriers to entry are nil, economies of scale don’t really exist because of tools like PayPal and that makes the whole marketplace perfectly competitive.
Unfortunately, I’d like to make the case that this isn’t true. You only have to look at WP Daily to see the huge number of theme marketplaces which crop up every week… only to shut their doors again a couple of months later.
There has to be some economic reason for this; I can’t be that 50% of new theme shops are just rubbish (well, it could but we’ll assume it’s not). Once you start looking at those reasons, it paints a slightly less bright picture of the Premium Theme marketplace, where the established players start looking like oligopolists (what’s that?).
Let’s take a closer look at the things which would prevent me from setting up a theme shop right now.
Barriers to entry
Okay, so let’s take a look at these magical barriers. The unique cross-border nature of the marketplace means there’s virtually no formal regulation, and no regulator, but that doesn’t mean barriers don’t exist.
There are two main barriers to entering the theme marketplace: economies of scale and reach establishment. The first is fairly straightforward to get your head around: it’s obvious that WooThemes can make better themes than you can because they have structures such as their WooFramework, their entire website, checkout, documentation and support systems in place already.
They’re set up to be scaleable and you’re…. well your not set up at all, actually. This doesn’t have to be a huge sticking point; you could create your own framework or use somebody else’s and set up your own website relatively quickly. It’s a barrier, though, and it’s certainly something that would put off potential entrants.
The big barrier, though, is what we’re going to call “reach establishment”. This is a couple of things such as established search positions, partnerships and existing customers, but simply — the largest theme houses have hundreds of thousands or even millions of visitors coming to their site every month. You could create a much better quality product than your established competitiors, but you’ll have trouble selling it if nobody visits your site.
Enter the pre-built marketplace
It’s here that we should mention ThemeForest, and hopefully this will go some way to show you why ThemeForest is so successful and what makes authors attracted to it. ThemeForest essentially removes the barriers to entry for you. You just need to create the product and they’ll stick it on their economies of scale and put it in front of millions of potential customers. They’ll take a cut of your sales, yes, but I’d rather have 65% of $10,000 of sales rather than 100% of $10 of sales.
Follow this through and it goes some way to explain the varying quality of themes found on ThemeForest. It’s not rocket science that if you make it easier for people to enter the marketplace, the quality will suffer as a result. On a site by itself, a mediocre quality product simply wouldn’t survive. On ThemeForest, though, alongside other better quality products, the mediocre product can survive.
Other marketplaces? Until they can compete with ThemeForest’s reach, they can’t compete with ThemeForest. For the sake of consumer choice, I hope someone does start to compete; pre-built marketplaces provide an import role in the WordPress economy by vastly reducing the barriers to entry.
Community expands consumer choice
The big thing we’ve not looked at yet is consumer choice. That is, say I want to buy a new theme for my website; how do I know which theme to buy?
Unfortunately, most consumers aren’t in anywhere near a position to judge what makes a theme “good”. You, reading this, probably have some idea what you need to look out for, but with the exponential increase in WordPress’ popularity, people like friend Joan who phones you every time her printer jams have tried to set up their own websites.
Joan has literally no idea what makes a theme good, other than whether or not on the theme’s sales page it has a large box which says “search engines” ticked. Joan wants her site on search engines.
This is a long-winded way of making a simple point: if we as the WordPress community want the quality of themes to increase, we need to tell people what makes a good theme in the first place. That’s pretty much it. Consumers can’t make informed decisions if they aren’t informed.
What happens now
It’s in pretty much everyone’s interests to see themes continue to innovate and increased competition is the major way that that’s going to continue to happen. So what happens now? I’ve not really touched on the position of the major theme shops, but the tl;dr is they’re pretty secure and aren’t going anywhere. The barriers to entry I keep on going on about means short term it’d actually be quite hard to mess anything up. People are going to keep coming to their sites and they’re going to continue to sell themes. Simple.
But new entrants to the market? I can’t actually remember anyone who’s broken into the marketplace and become an established site in the last year or two, and that’s not going to change. Have people started selling themes on ThemeForest relatively recently and ended up becoming successful there, though? Yep, and there’s no reason that going to change any time soon.
ThemeForest provides a unique way around the barriers to entry in the market, and in doing so actually provides a huge service to the WordPress community. It’s in everyone’s interest, then, that ThemeForest itself maximises freedoms of sellers and in doing so, consumers.
It’s also in everyone’s interest that the community makes an effort to educate consumers, so they’re able to make informed decisions about which themes work best for them.
And finally, it’s in everyone’s interest to support people entering the marketplace with new and innovative ideas. The next time there’s WP Daily post announcing an awesome new theme shop launching, I don’t want to find out a couple of months later that it’s died.