Either the upgrade price is too high, or the version increment is too small.

1) 50 percent of the base price for a 1/10 version increment upgrade seems FAR too much. If the upgrade from 3.5 to the current version REALLY has that much value in it, at least show your confidence about that by giving it a BIG version number boost. If you don't have the confidence that people will feel this is worthy of being called "Version 4," then also don't expect them to feel that the paid upgrade is worth it.

2) It is OFTEN the custom to give people who recently purchased a piece of software, a free (or at least discounted) upgrade to a major new release. I bought version 3.5 in December 2006, and I will NOT pay half the price over again in May, for a "dot" update. I would be better off waiting until the NEXT version appears, then buying it outright, rather than getting hit every few months with incremental update fees.

By the way, I absolutely HATE the idea of "subscription" software, which is what this is looking like.