Pricing Part Deux

My friend Charlie Wood released his breakthrough SpanningSync product and declared the price points, $25 per year or a $65 perpetual license.

Over at the influential TUAW blog the comments are 100% negative, even though the majority of commenters actually like the product. I can understand the negativity if we’re talking about a $600 product, but for something that delivers a unique feature set and gap fills like SpanningSync does, well I’m not so sure that giving Charlie $2 a month, or less than the cost of a latte, is really that egregious.

Ultimately, the marketplace will determine if the price points are right, not the commenters at TUAW and if any one of them thinks the price grossly unfair then they have an opportunity to create a competing product and sell it for less. Ain’t capitalism grand?

Charlie also pointed to a really timely post about pricing over at Daring Fireball where the final paragraph reveals a real piece of wisdom.

Pricing any product is difficult; pricing software particularly so, because the cost of goods isn’t a significant factor: it’s all just ones and zeroes. Of course you can set too high a price — but far more budding indie developers fail because their prices are too low than too high. Aim for high quality and set your price accordingly. If you want users to treat your software like it’s valuable, you, the developer, need to market it as though it’s valuable.

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Trends in Pricing

"The lie of the Web 2.0 bubble is that free is the way to succeed in the new economy. That’s not true. The rules of economics have not changed. The best way to make money in the new economy, in the Web 2.0 economy, comes down to the same fundamental business model that has always existed: create something of value for people who will pay for it”

This post on Gigaom was dead center in an issue I am working my way through right now.

In the case of Teqlo there are three potential sources of revenue: users, advertisers, and/or web service vendors. I’ll spare you the details of what each consists of in order to focus on the key issue, which is how you maximize consumption while at the same time not leaving any money on the table. In other words, it’s easy to remove economics as a reason why people won’t use your service, but if the issue is really that there is a group that will pay how do you target them without giving up the rest of the market you are capable of reaching.

The principle dilemma about advertising is that it requires a high degree of pageview traffic, which implies people using your service even if just occasionally, but at the same time requires a high degree of demographic targeting in order to maximize the ad unit price, otherwise known as the RPM. For a good explanation of how the economics scale, I would suggest you read this post from O’Reilly.

So in order to make advertising work we have to achieve high levels of usage while at the same time targeting a high value demographic.

To pull off a freemium pricing model I have to put a consumption or feature trigger in place. Examples include:

  • You use the service free for 30 days, or some other arbitrary number even though you intuitively know that if your prospective customers don’t use it in the first 30 minutes they will never come back.
  • You have, in our specific case, are subscribing to and using 5 applications, in order to get to number 6 you have to pay us.
  • There is a base set of free features and to get to the premium feature set, e.g. messaging and storage, you need to subscribe.

The temptation is to want to run the advertising model to subsidize the low end of the business, the free part, while converting users to the premium service and taking away advertising. What I am unsure about is the degree to which people will pay to remove advertising, and correlated to that is whether or not the successful conversion of users is actually suboptimizing the advertising stream.

Lately, I have begun to think that you have to go all-in with one model or the other, but it’s also evident that you have a clear understanding of who your customer is when you are making this choice.

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Economist’s Inbox

This is neat, the Economist is publishing any email sent to them on a specific story in an area they are calling "the Inbox". If only every publication would adopt this forward thinking tactic for engaging readers. Essentially, they are treating every story as a blog post even though it is not published that way, but further evidence that there is a blurring of the line between blogs and print/online media.

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